Question 1

How will a premium on bonds payable account appear on the balance sheet?

Accepted Answer

A premium on bonds payable account represents the amount paid by an investor in excess of the face value of the bond. It is recorded as a long-term liability on the balance sheet, increasing the value of the bonds payable.

Question 2

A company has $100,000 of outstanding bonds paying 8.5% annually and income of $50,000 before interest and taxes.How will the company calculate the interest coverage (accrual basis)ratio?

Accepted Answer

The interest coverage ratio is calculated by dividing income before interest and taxes by the interest expense. In this case, the interest expense would be 8.5% of the face value of the outstanding bonds (i.e. $8,500) since the question does not provide any information on the carrying value of the bonds. Therefore, the interest coverage ratio would be $50,000 / $8,500 = 5.88.

Question 3

Current assets are $200,000,long-term assets are $300,000,current liabilities are $100,000,long-term liabilities are $200,000,paid-in finance is $150,000,and retained earnings total $50,000.What is the total debt to total assets ratio?

Accepted Answer

$300,000 (Total liabilities)/ $500,000 (Total assets)= 0.6 or 0.6 to 1

Question 4

Keystone Corporation's balance sheet shows the following liability and shareholders' equity amounts: current liabilities,$100,000; bonds payable,$150,000; finance lease obligations,$20,000; deferred income tax liability,$5,000; and total shareholders' equity,$500,000.What is its debt-to-equity ratio?

Accepted Answer

$100,000 (Current liabilities)+ $150,000 (Bonds payable)+ $20,000 (Lease obligations)+ $5,000 (Deferred income taxes)/ $500,000 (Total shareholders' equity)
$275,000/$500,000 = .55

Question 5

Kids R Kids Company
Selected data from the comparative financial statements are provided below:
  $\begin{array}{c}
\text { Kids R Kids Company}\
\text { Income Statement}\
\text { Selected amounts}\
\text { (in thousands)}\
\begin{array}{r}
\hline\text { Year ended December 31,}\
\begin{array}{lrr}
&\underline{\text { Year 2}}&\underline{\text {  Year 1}}\
\text { Net sales } & \$ 18,813 & \$ 18,868 \
\text { Interest expense (all paid with cash) } & 277 & 258 \
\text { Income before income taxes } & 5,198 & 6,055 \
\text { Income taxes } & 1,665 & 1,926 \
\text { Net income } & 3.533 & 4.129
\end{array}
\end{array}
\end{array}$ $\begin{array}{c}
\text { Kids R Kids Company}\
\text { Income Statement}\
\text { Selected amounts}\
\text { (in thousands)}\
\begin{array}{r}
\hline\text { Year ended December 31,}\
\begin{array}{lrr}
&\underline{\text { Year 2}}&\underline{\text {  Year 1}}\
\text { Net cash provided by operating activities } & \$ 3,433& \$ 4,033 \
\text { Financing activities: } & \
\text { Cash dividends paid } & (1,480))&(1,387)\
\text { Purchase of treasury shares } & (1,563)& (1,262) \
\text { Issuance of debt } &1,818& 155\
\text { Repayment of long-term debt}&(410)&(751)\
\text { Issuances of shares }&302&150
\end{array}
\end{array}
\end{array}$
-Refer to Kids R Kids Company.The total long-term liabilities at December 31,Year 2,are (in thousands):

Accepted Answer

The answer of Kids R Kids Company
Selected data from the...

Question 6

A company wants to issue $600,000 of 10-year,6.8% bonds,with interest paid annually at the end of the year.The market rate of interest is currently 5%.What information is needed to determine the selling price?

Accepted Answer

In order to determine the selling price of the bonds, we need to know the face value of the bonds ($600,000), the stated rate of interest (6.8%), the market rate of interest (5%), and the bond's life (10 years). The bond rating and purpose of the issue are not necessary to calculate the selling price.

Question 7

How does a finance lease liability appear on the balance sheet?

Accepted Answer

A finance lease liability is a long-term liability and will appear under the liabilities section on the balance sheet.

Question 8

How will a finance leased asset appear on the balance sheet?

Accepted Answer

Finance lease - liability is a long-term liability that represents the obligation to make lease payments over the lease term.

Question 9

How will a discount on bonds payable account appear on the balance sheet?

Accepted Answer

A discount on bonds payable is a contra-liability account that reduces the carrying value of the bonds payable. It is shown as a deduction from the bonds payable amount in the long-term liability section of the balance sheet.

Question 10

How will the current portion of long-term debt appear on the balance sheet?

Accepted Answer

The current portion of long-term debt is the part of long-term debt that is due within the next 12 months. Therefore, it is considered a current liability and will appear as such on the balance sheet.

Question 11

The liabilities section of the company's most recent consolidated balance sheets is provided below:
 $\begin{array}{c}
\text { King Cotton Company }\
 \text {Consolidated Balance Sheets}\
 \text { (in millions)}\
\begin{array}{llr}
\hline && \text { December 31, } \
&\text { Year 2 } & \text { Year 1 } \
 \text { Current liabilities } &\
 \text { Short-term borrowings } &\$250&\$200\
 \text {Accounts payable and other current liabilities  } &4,500&4,450\
 \text {Income taxes payable  } &\underline{200}&\underline{50}\
 \text {Total current liabilities  } &\$4,950&\$4,700\
\
 \text { Long-term debt  } &2,700&3,000\
 \text {Other long-term liabilities  } &3,800&3,950\
 \text {   Deferred income taxes} &1,500&1,400\
\end{array}
\end{array}$

-Refer to King Cotton Company.What are the total long-term liabilities for each of the two years presented?

Accepted Answer

The answer of The liabilities section of the company's most...

Question 12

How will a 20-year lease obligation appear on the balance sheet?

Accepted Answer

A 20-year lease obligation represents a long-term liability, as it is a contractual obligation that will not be paid off within the current fiscal year. It would not be considered a current asset or a long-term asset, as it does not have tangible value or contribute to potential future benefits of the company. It also would not be reflected in shareholders' equity, as it does not represent ownership stake or investment in the company.

Question 13

Keller Company issued $1,000,000,8%,seven-year bonds with interest payable semiannually when the yield rate was 8%.How much were the bonds issued at?

Accepted Answer

Since the coupon rate (8%) equals the yield rate (8%), the bonds were issued at their face value, which is $1,000,000.

Question 14

Kids R Kids Company
Selected data from the comparative financial statements are provided below:
  $\begin{array}{c}
\text { Kids R Kids Company}\
\text { Income Statement}\
\text { Selected amounts}\
\text { (in thousands)}\
\begin{array}{r}
\hline\text { Year ended December 31,}\
\begin{array}{lrr}
&\underline{\text { Year 2}}&\underline{\text {  Year 1}}\
\text { Net sales } & \$ 18,813 & \$ 18,868 \
\text { Interest expense (all paid with cash) } & 277 & 258 \
\text { Income before income taxes } & 5,198 & 6,055 \
\text { Income taxes } & 1,665 & 1,926 \
\text { Net income } & 3.533 & 4.129
\end{array}
\end{array}
\end{array}$ $\begin{array}{c}
\text { Kids R Kids Company}\
\text { Income Statement}\
\text { Selected amounts}\
\text { (in thousands)}\
\begin{array}{r}
\hline\text { Year ended December 31,}\
\begin{array}{lrr}
&\underline{\text { Year 2}}&\underline{\text {  Year 1}}\
\text { Net cash provided by operating activities } & \$ 3,433& \$ 4,033 \
\text { Financing activities: } & \
\text { Cash dividends paid } & (1,480))&(1,387)\
\text { Purchase of treasury shares } & (1,563)& (1,262) \
\text { Issuance of debt } &1,818& 155\
\text { Repayment of long-term debt}&(410)&(751)\
\text { Issuances of shares }&302&150
\end{array}
\end{array}
\end{array}$
-Refer to Kids R Kids Company.
 A) The total liabilities at December 31, Year 2, are (in thousands);
B) The debt-to-equity ratio at December 31 , Year 2, is:

Accepted Answer

The answer of Kids R Kids Company
Selected data from the...

Question 15

Kids R Kids Company
Selected data from the comparative financial statements are provided below:
  $\begin{array}{c}
\text { Kids R Kids Company}\
\text { Income Statement}\
\text { Selected amounts}\
\text { (in thousands)}\
\begin{array}{r}
\hline\text { Year ended December 31,}\
\begin{array}{lrr}
&\underline{\text { Year 2}}&\underline{\text {  Year 1}}\
\text { Net sales } & \$ 18,813 & \$ 18,868 \
\text { Interest expense (all paid with cash) } & 277 & 258 \
\text { Income before income taxes } & 5,198 & 6,055 \
\text { Income taxes } & 1,665 & 1,926 \
\text { Net income } & 3.533 & 4.129
\end{array}
\end{array}
\end{array}$ $\begin{array}{c}
\text { Kids R Kids Company}\
\text { Income Statement}\
\text { Selected amounts}\
\text { (in thousands)}\
\begin{array}{r}
\hline\text { Year ended December 31,}\
\begin{array}{lrr}
&\underline{\text { Year 2}}&\underline{\text {  Year 1}}\
\text { Net cash provided by operating activities } & \$ 3,433& \$ 4,033 \
\text { Financing activities: } & \
\text { Cash dividends paid } & (1,480))&(1,387)\
\text { Purchase of treasury shares } & (1,563)& (1,262) \
\text { Issuance of debt } &1,818& 155\
\text { Repayment of long-term debt}&(410)&(751)\
\text { Issuances of shares }&302&150
\end{array}
\end{array}
\end{array}$
-Refer to Kids R Kids Company.The interest coverage (cash basis)ratio at December 31,Year 2,is:

Accepted Answer

The answer of Kids R Kids Company
Selected data from the...

Question 16

A company with operating income of $200,000,cash flow from operating activities of $75,000,and gross profit of $380,000 has interest payments of $25,000.What is the company's interest coverage ratio (cash basis)?

Accepted Answer

$75,000 (Cash flows from operations)/ $25,000 (Interest payments)= 3 or 3.0 to 1

Question 17

How is the bond issue price determined?

Accepted Answer

The bond issue price is determined by calculating the present value of the stream of interest payments and the present value of the maturity amount. This is done using a discount rate or yield that reflects the risk of the bond and market conditions. The present value represents the current worth of the future cash flows from the bond, and is used to determine the price that investors will pay for the bond.

Question 18

How will rent owed to the lessor under an operating lease appear on the balance sheet?

Accepted Answer

Rent owed to the lessor under an operating lease is a current liability because it represents an obligation to pay within the next year.

Question 19

A company's balance sheet shows the following amounts for liabilities and shareholders' equity accounts: current liabilities,$50,000; bonds payable,$600,000; finance lease obligations,$120,000; and deferred income tax liability,$20,000.Total shareholders' equity is $520,000.What is the debt-to-equity ratio?

Accepted Answer

$50,000 (Current liabilities)+ $600,000 (Bonds payable)+ $120,000 (Lease obligations)+ $20,000 (Deferred income taxes)/ $520,000 (Total shareholders' equity)=
$790,000 / $520,000 = 1.519 or 1.52

Question 20

Kids R Kids Company
Selected data from the comparative financial statements are provided below:
  $\begin{array}{c}
\text { Kids R Kids Company}\
\text { Income Statement}\
\text { Selected amounts}\
\text { (in thousands)}\
\begin{array}{r}
\hline\text { Year ended December 31,}\
\begin{array}{lrr}
&\underline{\text { Year 2}}&\underline{\text {  Year 1}}\
\text { Net sales } & \$ 18,813 & \$ 18,868 \
\text { Interest expense (all paid with cash) } & 277 & 258 \
\text { Income before income taxes } & 5,198 & 6,055 \
\text { Income taxes } & 1,665 & 1,926 \
\text { Net income } & 3.533 & 4.129
\end{array}
\end{array}
\end{array}$ $\begin{array}{c}
\text { Kids R Kids Company}\
\text { Income Statement}\
\text { Selected amounts}\
\text { (in thousands)}\
\begin{array}{r}
\hline\text { Year ended December 31,}\
\begin{array}{lrr}
&\underline{\text { Year 2}}&\underline{\text {  Year 1}}\
\text { Net cash provided by operating activities } & \$ 3,433& \$ 4,033 \
\text { Financing activities: } & \
\text { Cash dividends paid } & (1,480))&(1,387)\
\text { Purchase of treasury shares } & (1,563)& (1,262) \
\text { Issuance of debt } &1,818& 155\
\text { Repayment of long-term debt}&(410)&(751)\
\text { Issuances of shares }&302&150
\end{array}
\end{array}
\end{array}$
-Refer to Kids R Kids Company.The interest coverage (accrual basis)ratio at December 31,Year 2,is:

Accepted Answer

The answer of Kids R Kids Company
Selected data from the...

Quiz 9: Long-Term Liabilities

How will a premium on bonds payable account appear on the balance sheet?

A company has $100,000 of outstanding bonds paying 8.5% annually and income of $50,000 before interest and taxes.How will the company calculate the interest coverage (accrual basis) ratio?

Current assets are $200,000,long-term assets are $300,000,current liabilities are $100,000,long-term liabilities are $200,000,paid-in finance is $150,000,and retained earnings total $50,000.What is the total debt to total assets ratio?

A company wants to issue $600,000 of 10-year,6.8% bonds,with interest paid annually at the end of the year.The market rate of interest is currently 5%.What information is needed to determine the selling price?

How does a finance lease liability appear on the balance sheet?

How will a finance leased asset appear on the balance sheet?

How will a discount on bonds payable account appear on the balance sheet?

How will the current portion of long-term debt appear on the balance sheet?

How will a 20-year lease obligation appear on the balance sheet?

Keller Company issued $1,000,000,8%,seven-year bonds with interest payable semiannually when the yield rate was 8%.How much were the bonds issued at?

A company with operating income of $200,000,cash flow from operating activities of $75,000,and gross profit of $380,000 has interest payments of $25,000.What is the company's interest coverage ratio (cash basis) ?

How is the bond issue price determined?

How will rent owed to the lessor under an operating lease appear on the balance sheet?