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Exam 10: Accounting for Long-Term Debt

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Question 41

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How are bonds payable usually classified on the balance sheet?

A) Current liabilities
B) Long-term liabilities
C) Investments and funds
D) Other assets

E) A) and B)
F) A) and C)

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Question 42

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[The following information applies to the questions displayed below.] On January 1, Year 1, Mahoney Company borrowed $324,000 cash from Sun Bank by issuing a 5-year, 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan equals $81,150. -What is the amount of principal repayment included in the payment made on December 31,Year 1?

A) $25,920
B) $81,150
C) $74,658
D) $55,230

E) A) and B)
F) C) and D)

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Question 43

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Marvin Company issues $125,000 of bonds at face value on January 1.The bonds carry a 6% annual stated rate of interest.Interest is payable in cash on December 31 of each year.Which of the following shows the effect of the first interest payment on the elements of the financial statements?

[The following information applies to the questions displayed below.] On January 1, Year 1, Niagara Corporation arranges a $6,000 line of credit with Centennial Bank. It accepted the bank's offer of 1% above the prime rate with interest payments on December 31 of each year. All borrowings and repayments are to take place on January 1 of each year. -North Woods Company has a line of credit with Olympia State Bank.North Woods agreed to pay interest at an annual rate equal to 2% above the bank's prime rate.Funds are borrowed or repaid on the first day of each month and interest is paid in cash on the last day of each month.Borrowing is shown as a positive amount,and repayments are shown as negative amounts indicated by parentheses.Activity to date is given as follows: What is the amount of interest paid at the end of March?

[The following information applies to the questions displayed below.] On January 1, Year 1, Weller Company issued bonds with a $400,000 face value, a stated rate of interest of 10%, and a 10-year term to maturity. Weller uses the effective interest method to amortize bond discounts and premiums. The market rate of interest on the date of issuance was 8%. Interest is paid annually on December 31. -Assuming Weller issued the bond for $431,940,what is the amount of interest expense that will be recognized during Year 3?

On January 1,Year 1,Brown Co.issued bonds with a face value of $200,000,a stated rate of interest of 10%,and a 20-year term to maturity.The bonds were issued at face value.If Bluefield's tax rate is 40%,what is the after-tax cost of borrowing related to these bonds for Year 1?

[The following information applies to the questions displayed below.] On January 1, Year 1, Jones Company issued bonds with a $200,000 face value, a stated rate of interest of 7.5%, and a 5-year term to maturity. The bonds were issued at 97. Interest is payable in cash on December 31st of each year. The company amortizes bond discounts and premiums using the straight-line method. -What is the total amount of liabilities shown on Jones' balance sheet at December 31,Year 2?

If bonds with a face value of $200,000 are issued at 98,the amount of cash received from issuing the bonds is $204,082.

A line of credit is an agreement that allows a company to borrow a set amount of money for a period of one year or more.

Which of the following correctly describes an installment note?

[The following information applies to the questions displayed below.] On January 1 Year 1, Gordon Corporation issued bonds with a face value of $70,000, a stated rate of interest of 6%, and a 5-year term to maturity. The bonds were issued at 98. Interest is payable in cash on December 31 each year. Gordon uses the straight-line method to amortize bond discounts and premiums. -Which of the following shows the effect of the first interest payment and amortization of the premium or discount on the elements of the financial statements?

The tax deductibility of interest expense on bonds makes the effective cost of borrowing less than the amount of cash paid for interest.

[The following information applies to the questions displayed below.] On January 1, Year 1, Niagara Corporation arranges a $6,000 line of credit with Centennial Bank. It accepted the bank's offer of 1% above the prime rate with interest payments on December 31 of each year. All borrowings and repayments are to take place on January 1 of each year. -Niagara records the first year's interest payment on December 31,Year 1.Centennial's prime rate is 4% for Year 1.Which of the following shows the effect of this event on the elements of the financial statements?

[The following information applies to the questions displayed below.] On January 1, Year 1, Mahoney Company borrowed $324,000 cash from Sun Bank by issuing a 5-year, 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan equals $81,150. -Which of the following shows the effects on the elements of the financial statement of the cash payment on December 31,Year 1?

Davis Corporation borrowed $50,000 on January 1,Year 1.The loan is for a 10-year period and has an annual interest rate of 9%.At the end of each year,Davis will make a payment of $7,791,which includes both principal and interest.The amount of the payment for Year 1 that is repayment of principal is $3,587.

[The following information applies to the questions displayed below.] On January 1, Year 1, Platte Corporation issues a 5-year note payable for $5,000. The interest rate is 5% and the annual payment of $1,156, due each December 31, includes both interest and principal. -Which of the following correctly shows the effect of the issuance of the note on Platte's financial statements?

[The following information applies to the questions displayed below.] On January 1, Year 1, Wayne Company issued bonds with a face value of $600,000, a 6% stated rate of interest, and a 10-year term. Interest is payable in cash on December 31 of each year. Wayne uses the straight-line method to amortize bond discounts and premiums. -Which of the following statements is true if Wayne issued the bonds for 96?

If a company has issued bonds at a premium,the amount of interest expense reported on the income statement each year will be greater than the amount of cash paid to bondholders for interest.

On January 1,Year 1,Eureka Company issued $100,000 of five-year,7% bonds at face value.The annual cash payment for interest is due on January 1 of each year beginning January 1,Year 2.Based on this information,what is the total amount of liabilities related to these bonds that will be reported on the balance sheet at December 31,Year 1? (Hint: Consider the interest that might be owed to bondholders at December 31,Year 1.)

[The following information applies to the questions displayed below.] On January 1, Year 1, Echols Company borrowed $100,000 cash from Sun Bank by issuing a 5-year, 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan equals $25,045.65. -Which of the following shows how the borrowing of cash from Sun Bank on January 1,Year 1,affects the elements of the financial statements?