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Accounting Principles , Tenth Edition

Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

Chapter 15

Long-Term Liabilities - all with Video Answers

Educators

Chapter Questions

Problem 1

The term used for bonds that are unsecured is:
a. callable bonds.
c. debenture bonds
b. indenture bonds.
d. bearer bonds.

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Problem 2

The market interest rate:
a. is the contractual interest rate used to determine the amount of cash interest paid by the borrower.
b. is listed in the bond indenture.
c. is the rate investors demand for loaning funds.
d. More than one of the above is true.

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01:27

Problem 3

Karson Inc issues 10-year bonds with a maturity value of $\$ 200,000$. If the bonds are issued at a premium, this indicates that:
a. the contractual interest rate exceeds the market interest rate.
b. the market interest rate exceeds the contractual interest rate.
c. the contractual interest rate and the market interest rate are the same.
d. no relationship exists between the two rates.

Vikash Ranjan
Vikash Ranjan
Numerade Educator

Problem 4

Four-Nine Corporation issued bonds that pay interest every July 1 and January 1 . The entry to accrue bond interest at December 31 includes a:
a. debit to Interest Payable.
b. credit to Cash.
c. credit to Interest Expense.
d. credit to Interest Payable.

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04:10

Problem 5

Gester Corporation retires its $$\$ 100000$$ face value bonds at 105 on hanuary 1, following the payment of semiannual interest. The carrying value of the bonds at the redemption date is $$\$ 103,745$$. The entry to record the redemption will include a: a. credit of $$\$3,745$$ to Loss on Bond Redemption.
b. debit of $$\$ 3,745$$ to Premium on Bonds Payable.
c. credit of $$\$ 1,255$$ to Gain on Bond Redemption.
d. debit of $$\$ 5,000$$ to Premium on Bonds Payable.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator

Problem 6

Colson Inc. cooverts $$\$ 600,000$$ of bonds sold at face value into 10,000 shares of common stock, par value $$\$1$$. Both the bonds and the stock have a market value of $$\$ 760,000$$. What amount should be credited to Paid-in Capital in Excess of Par-Common Stock as a result of the conversion?
a. $$\$ 10,000$$.
c. $$\$ 600,000$$.
b. $$\$ 160,000$$.
d. $$\$ 590.000$$.

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Problem 7

Howard Corporation issued a 20-year mortgage note payable on January 1,2012. At December 31,2012, the unpaid principal balance will be reported as:
a. a current liability.
b. a long-term liability.
c. part current and part long-term liability. d. interest payable.

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05:54

Problem 8

Andrews Inc. issues a $$\$ 497,000,10 \%$$ 3-year mortgage note on January 1. The note will be paid in three annual installments of $$\$ 200,000$$, each payable at the end of the year. What is the amount of interest expense that should be recognized by Andrews Inc, in the second year?
a. $$\$ 16.567$$
c. $$\$ 34,670$$.
b. $$\$ 49,700$$.
d. $$\$ 346,700$$.

Amy Jiang
Amy Jiang
Numerade Educator

Problem 9

Lease $\mathrm{A}$ does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases?
Lease $A$
a. Operating lease
b. Operating lease
c. Capital lease
d. Capital lease
Iease B
Capital lease
Operating lease
Operating lease
Capital lease

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Problem 10

For 2012, Corn Flake Corporation reported net income of $$\$ 300,000$$. Interest expense was $$\$ 40,000$$ and income taxes were $$\$ 100,000$$. The times interest earned ratio was:
a. 3 times.
c. 7.5 times.
b. 4.4 times.
d. 11 times.

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Problem 11

The market price of a bond is dependent on:
a. the payment amounts.
b. the length of time until the amounts are paid.
c. the interest rate.
d. All of the above.

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04:10

Problem 12

On January 1, Besalius Inc. issued $$\$ 1,000,000,9 \%$$ bonds for $$\$ 938.554$$. The market rate of interest for these bonds is $$10 \%$$. Interest is payable annually on December 31 . Besalius uses the effective-interest method of amortizing bond discount. At the end of the first year, Besalius should report unamortized bond discount of:
a. $$\$ 54,900$$.
c. $$\$ 51,610$$.
b. $$\$ 57, \$ 91$$.
d. $$\$ \$ 1,000$$.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator

Problem 13

On January 1, Dias Corporation issucd $\$ 1,000,000,10 \%$. 5-year bonds with interest payable on July 1 and January 1. The bonds sold for $\$ 1,081,105$. The market rate of interest for these bonds was $8 \%$. On the first interest date, using the effective-interest method, the debit entry to Interest Expense is for:
a. $\$ 50,000$.
c. $\$ 43,244$.
b. $\$ 54,055$.
d. $\$ 100.811$.

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Problem 14

On January 1, Hurley Corporation issues $$\$ 500,000,5$$-year, $$12 \%$$ bonds at 96 with interest payable on July 1 and January 1 . The entry on July 1 to record payment of bond interest and the amortization of bond discount using the straight-line method will include a:
a. debit to Interest Expense $$\$ 30,000$$.
b. debit to Interest Expense $$\$ 60,000$$.
c. credit to Discount on Bonds Payable $$\$4,000$$.
d. credit to Discount on Bonds Payable $$\$2,000$$.

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Problem 15

For the bonds issued in question 14 above, what is the carrying value of the bonds at the end of the third interest period?
a. $$\$ 486,000$$.
c. $$\$ 472,000$$.
b. $$\$ 488,000$$.
d. $$\$ 464,000$$.

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