Question 1

Explain the amortization of a bond premium.Identify and describe the amortization methods available.

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Question 2

A company issues bonds with a par value of $800,000 on their issue date.The bonds mature in 5 years and pay 6% annual interest in two semiannual payments.On the issue date,the market rate of interest is 8%.Compute the price of the bonds on their issue date.The following information is taken from present value tables:
Present value of an annuity for 10 periods at 3% ...................8.5302
Present value of an annuity for 10 periods at 4% ...................8.1109
Present value of 1 due in 10 periods at 3%................... 0.7441
Present value of 1 due in 10 periods at 4% ...................0.6756

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Question 3

On January 1,the Plimpton Corporation leased some equipment on a 2-year lease,paying $15,000 per year each December 31.The lease is considered to be an operating lease.Prepare the general journal entry to record the first lease payment on December 31.

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Question 4

A company issued 10%,10-year bonds with a par value of $1,000,000 on January 1,at a selling price of $885,295,to yield the buyers a 12% return.The company uses the effective interest amortization method.Interest is paid semiannually each June 30 and December 31.
(1)Prepare an amortization table for the first two payment periods using the format shown below:
  (2)Prepare the journal entry to record the first semiannual interest payment.

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Question 5

Martin Corporation issued $3,000,000 of 8%,20-year bonds payable at par value on January 1.Interest is payable each June 30 and December 31.
(a)Prepare the general journal entry to record the issuance of the bonds on January 1.
(b)Prepare the general journal entry to record the first interest payment on June 30.

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Question 6

Hornet Corporation has a loan agreement that provides it with cash today,and the company must pay $25,000 one year from today,$15,000 two years from today,and $5,000 three years from today.Hornet agrees to pay 10% interest.The following are factors from a present value table:
  What is the amount of cash that Hornet receives today?

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Question 7

Harrison Company's balance sheet reflects total assets of $250,000 and total liabilities of $150,000.Calculate the company's debt-to-equity ratio.

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Question 8

Shin Company has a loan agreement that provides it with cash today,and the company must pay $25,000 4 years from today.Shin agrees to a 6% interest rate.The present value factor for 4 periods,6% is 0.7921.What is the amount of cash that Shin Company receives today?

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Question 9

A company issued 10-year,9% bonds,with a par value of $500,000 when the market rate was 9.5%.The issuer received $484,087 in cash proceeds.Prepare the issuer's journal entry to record the bond issuance.

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Question 10

On June 1,a company issued $200,000 of 12% bonds at their par value plus accrued interest.The interest on these bonds is payable semiannually on January 1 and July 1.Prepare the issuer's journal entry to record the bond issuance of June 1.

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Question 11

Describe the recording procedures for the issuance,retirement,and paying of interest for notes.

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Question 12

On October 1 of the current year a corporation sold,at par plus accrued interest,$1,000,000 of its 12% bonds,which were dated July 1 of this year.What amount of bond interest expense should the company report on its current year income statement?

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Question 13

A company issued 9.2%,10-year bonds with a par value of $100,000.Interest is paid semiannually.The market interest rate on the issue date was 10%,and the issuer received $95,016 cash for the bonds.The issuer uses the effective interest method for amortization.On the first semiannual interest date,what amount of discount should issuer amortize?

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Question 14

On January 1,Leyden Corporation leased a truck,agreeing to pay $15,252 every December 31 for the six-year life of the lease.The present value of the lease payments,at 6% interest,is $75,000.The lease is considered a capital lease.
(a)Prepare the general journal entry to record the acquisition of the truck with the capital lease.
(b)Prepare the general journal entry to record the first lease payment on December 31.
(c)Record straight-line depreciation on the truck on December 31,assuming a 6-year life and no salvage value.

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Question 15

What are methods that a company may use to retire its bonds?

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Question 16

A company issued 10-year,9% bonds with a par value of $500,000 when the market rate was 9.5%.The company received $484,087 in cash proceeds.Using the straight-line method,prepare the issuer's journal entry to record the first semiannual interest payment and the amortization of any bond discount or premium.

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Question 17

A company enters into an agreement to make 5 annual year-end payments of $3,000 each,starting one year from now.The annual interest rate is 6%.The present value of an annuity factor for 5 periods,6% is 4.2124.What is the present value of these five payments?

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Question 18

A company issued 9%,10-years bonds with a par value of $1,000,000 on September 1,Year 1 when the market rate was 9%.The bonds were dated June 30,Year 1.The bond issue price included accrued interest.Interest is paid semiannually on December 31 and June 30.
(a)Prepare the issuer's journal entry to record the issuance of the bonds on September 1.
(b)Prepare the issuer's journal entry to record the semiannual interest payment on December 31,Year 1.

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Question 19

On January 1,a company issues bonds with a par value of $300,000.The bonds mature in 5 years,and pay 8% annual interest,payable each June 30 and December 31.On the issue date,the market rate of interest for the bonds is 10%.Compute the price of the bonds on their issue date.The following information is taken from present value tables:

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Question 20

Walker Corporation issued 14%,5-year bonds with a par value of $5,000,000 on January 1,Year 1.Interest is to be paid semiannually on each June 30 and December 31.The bonds are issued at $5,368,035 cash when the market rate for this bond is 12%.
(a)Prepare the general journal entry to record the issuance of the bonds on January 1,year 1.
(b)Show how the bonds would be reported on Walker's balance sheet at January 1,Year 1.
(c)Assume that Walker uses the effective interest method of amortization of any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,Year 1.
(d)Assume instead that Walker uses the straight-line method of amortization of any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,Year 1.

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Quiz 14: Long-Term Liabilities