Question 1

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
- Just before bonds are retired, the balance in the Bonds Payable account is equal to the bond's

Accepted Answer

When bonds are retired or paid off, the balance in the Bonds Payable account should be equal to the bond's face value, which is the amount the company borrowed when the bonds were issued. This is because any discounts or premiums would have already been amortized over the life of the bond and applied to the Bonds Payable account, and any interest to be paid would have been accrued separately in an Interest Payable account. The issuance price, while important for calculating the initial proceeds of the bond issuance, is not relevant to determining the balance in the Bonds Payable account at retirement. Therefore, the correct answer is A) Face value.

Question 2

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-On January 1, 2012, Lawton Corporation issued 10-year, $1,000,000 bonds with a stated interest rate of 10%. The effective interest rate is 10% and interest is paid semi-annually on January 1 and July 1. The journal entry to record the bond issuance would include a

Accepted Answer

The bonds are issued at par value because the stated interest rate equals the effective interest rate. Therefore, the cash received from the bond issuance is $1,000,000, which is debited to the Cash account.

Question 3

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
- Which of the following is NOT used to evaluate a company's financial leverage?

Accepted Answer

The answer of Use the present value and future value...

Question 4

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
- The entry to record a bond retirement at maturity usually involves

Accepted Answer

When a bond is retired at maturity, there is no gain or loss to be recognized. The bond was issued at a certain amount and redeemed at the same amount, resulting in no gain or loss. Therefore, the correct answer is A.

Question 5

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Hakeem, Inc. reported the following data in its 2011 financial statements: total liabilities $38,400; total stockholders' equity, $19,200; net income, $4,320; income tax expense, $2,880; and interest expense, $2,400. The debt-to-equity ratio is

Accepted Answer

The debt-to-equity ratio is calculated by dividing total liabilities by total stockholders' equity. Here, $38,400 / $19,200 = 2.00.

Question 6

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Flute Corporation issued $200,000, 10-year, 9 percent bonds at a time when the market rate of interest was 7 percent. These bonds will be issued for

Accepted Answer

The market rate of interest is lower than the coupon rate of 9%, which means that investors will be willing to pay more than the face value of the bond (which is $200,000) to receive the higher interest payments. Using the present value and future value tables, we can calculate that the present value of the bond payments is $232,302. This means that the bonds will be issued for more than $200,000.

Question 7

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Hakeem, Inc. reported the following data in its 2011 financial statements: total liabilities $38,400; total stockholders' equity, $19,200; net income, $4,320; income tax expense, $2,880; and interest expense, $2,400. The debt ratio is

Accepted Answer

The debt ratio is calculated as total liabilities divided by total assets. We can determine total assets by adding total liabilities and total stockholders' equity:

Total assets = Total liabilities + Total stockholders' equity
Total assets = $38,400 + $19,200
Total assets = $57,600

Therefore, the debt ratio is:

Debt ratio = Total liabilities / Total assets
Debt ratio = $38,400 / $57,600
Debt ratio = 0.67 or 67%

So, the correct answer is B) 67%.

Question 8

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Flute Corporation issued $200,000, 10-year, 9 percent bonds at a time when the market rate of interest was 9 percent. These bonds will be issued for

Accepted Answer

When the market rate of interest is the same as the coupon rate (in this case, 9%), the bonds will be issued at par value, which in this case is $200,000. Therefore, the answer is A.

Question 9

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
- When bonds are first issued, the liability is entered in the Bonds Payable account at the bond's

Accepted Answer

When bonds are first issued, the liability is entered in the Bonds Payable account at the bond's face value, which is the amount that the issuer promises to pay at the maturity date.

Question 10

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-LaFluer Corporation issued $400,000 of 15-year bonds on January 1. The bonds pay interest on January 1 and July 1 with a stated rate of 8 percent. If the market rate of interest at the time the bonds are sold is 6 percent, what will be the issuance price (approximate) of the bonds?

Accepted Answer

The issuance price of the bonds is calculated by finding the present value of the bond's future cash flows (interest payments and principal repayment) discounted at the market rate of 6%. The present value of the interest payments and the principal repayment at maturity will be higher than the face value due to the lower market rate compared to the stated rate.

Question 11

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-If a gain occurs on the early retirement of bonds, it is

Accepted Answer

If a gain occurs on the early retirement of bonds, it is reported on the income statement. This gain is calculated as the difference between the cash paid to retire the bonds and the carrying amount of the bonds on the date of retirement. The gain is recognized immediately in the period in which the retirement occurs and is reported as part of the income from continuing operations on the income statement.

Question 12

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-On January 1, 2012, Lawton Corporation issued 10-year, $1,000,000 bonds with a stated interest rate of 10%. The effective interest rate is 10% and interest is paid semi-annually on January 1 and July 1. The journal entry to record the first semi-annual interest payment on July 1, 2012 would include a

Accepted Answer

Since the interest is paid semi-annually, the interest payment on July 1, 2012 would be calculated as follows:
Interest = $1,000,000 x 10% x 6/12 = $50,000
Therefore, the journal entry to record the first semi-annual interest payment on July 1, 2012 would be:
Debit to Bonds Interest Expense of $50,000
Credit to Cash of $50,000

Question 13

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-The method of bond amortization that results in a varying amount of amortization each period is the

Accepted Answer

Effective-interest amortization results in a varying amount of amortization each period because it uses the current carrying value of the bond and applies the interest rate to that amount, which changes as the bond gets closer to maturity. This method is considered more accurate than straight-line amortization, which results in equal amounts of amortization each period, regardless of the current carrying value of the bond. Accelerated amortization is not a recognized method of bond amortization.

Question 14

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Flute Corporation issued $200,000, 10-year, 9 percent bonds at a time when the market rate of interest was 12 percent. These bonds will be issued for

Accepted Answer

Since the market rate of interest is higher than the coupon rate on the bonds, the bonds will be issued at a discount. Therefore, the issue price will be less than the face value of $200,000. To determine the exact issue price, we need to calculate the present value of the bond's future cash flows using the market rate of interest.

Question 15

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
- LaFluer Corporation issued $400,000 of 15-year bonds on January 1. The bonds pay interest on January 1 and July 1 with a stated rate of 8 percent. If the market rate of interest at the time the bonds are sold is 10 percent, what will be the issuance price (approximate) of the bonds?

Accepted Answer

The answer of Use the present value and future value...

Question 16

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-A bond retired before maturity usually involves a

Accepted Answer

When a bond is retired before maturity, the Bonds Payable account is debited to remove the liability from the books.

Question 17

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
- On January 1, 2012, Lawton Corporation issued 10-year, $1,000,000 bonds with a stated interest rate of 10%. The effective interest rate is 10% and interest is paid semi-annually on January 1 and July 1. The journal entry to record the retirement of the bonds on January 1, 2022, assuming all interest has been accounted for, would include a

Accepted Answer

The bonds are being retired at their face value, so the Bonds Payable account is debited to remove the liability from the books.

Question 18

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-IWhich of the following ratios is used to evaluate a company's ability to meet its periodic interest payments?

Accepted Answer

The times interest earned ratio measures a company's ability to meet its periodic interest payments.

Question 19

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
- Hakeem, Inc. reported the following data in its 2011 financial statements: total liabilities $38,400; total stockholders' equity, $19,200; net income, $4,320; income tax expense, $2,880; and interest expense, $2,400. The times interest earned ratio is

Accepted Answer

The times interest earned ratio is calculated by dividing the net income by the interest expense. In this case, the net income is $4,320 and the interest expense is $2,400, so the times interest earned ratio is $4,320 / $2,400 = 1.8 times.

Question 20

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-If the market rate of interest is 12 percent and a company is issuing long-term bonds paying 10 percent, at what percent would those liabilities have to be discounted, assuming semiannual compounding?

Accepted Answer

To find the discount rate, we need to use the present value of an annuity factor. Using Appendix 8, with a 10-year term and semiannual compounding, the present value of an annuity factor at 10% is 7.72173. Then, dividing 12% by 2 to account for semiannual compounding gives a periodic interest rate of 6%. Using the present value of an annuity factor table and a 10-year term with semiannual compounding, the present value of an annuity factor at 6% is 7.72173. Therefore, the liabilities would have to be discounted at a rate of 6% to have a present value at issuance equal to their face amount.

Quiz 10: Financing: Long-Term Liabilities

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. - Just before bonds are retired, the balance in the Bonds Payable account is equal to the bond's

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. - Which of the following is NOT used to evaluate a company's financial leverage?

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. - The entry to record a bond retirement at maturity usually involves

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Flute Corporation issued $200,000, 10-year, 9 percent bonds at a time when the market rate of interest was 7 percent. These bonds will be issued for

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Flute Corporation issued $200,000, 10-year, 9 percent bonds at a time when the market rate of interest was 9 percent. These bonds will be issued for

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. - When bonds are first issued, the liability is entered in the Bonds Payable account at the bond's

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -If a gain occurs on the early retirement of bonds, it is

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -The method of bond amortization that results in a varying amount of amortization each period is the

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Flute Corporation issued $200,000, 10-year, 9 percent bonds at a time when the market rate of interest was 12 percent. These bonds will be issued for

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -A bond retired before maturity usually involves a

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -IWhich of the following ratios is used to evaluate a company's ability to meet its periodic interest payments?