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Exam 14: Bonds and Long-Term Notes Payable

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Question 51

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On January 1, Gary Corporation signs a 6-year lease, which requires annual payments of $51,000 on December 31. The lease meets the requirements of a finance lease.Assuming an interest rate of 5%, calculate the value of the Lease Liability after the first payment.

A) $258,861.
B) $220,804.
C) $138,543.
D) $106,941.
E) $110,834.

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Question 52

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A bondholder who owns a $1,000, 10%, 10-year bond has the right to:

A) Vote.
B) Receive $1,000 at maturity.
C) Receive dividends.
D) Receive $10 per year until maturity.
E) None of these answers is correct.

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Question 53

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If a bond is issued at a premium, interest expense will decrease over the term of the bond.

Mike Limited issues $200,000 of its 9% bonds at par on April 1, which is 4 months after the original issue date. How much interest should Mike collect from the buyer?

In the event of bankruptcy, owners of secured bonds receive their share of the firm's assets as payment before the owners of other unsecured debt.

Bonds that give the issuer an option of retiring them before they mature are known as:

Paul Corporation has $100,000 in bonds outstanding. The unamortized discount on these bonds is $4,500. If the corporation redeems these bonds at 97, what is the gain loss) on retirement?

A premium on bonds payable arises when the bonds carry a contract rate greater than the current market rate.

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

The Discount on Bonds Payable account is:

An advantage of bond financing is that interest does not have to be paid.

The contract rate is also called the:

Explain the amortization of bond premium.

On January 1, 2015, SuperBowl Inc signed a two-year, 7% $5,000 note payable. The note plus interest is due on December 31, 2016. The amount of interest expense to be recorded for 2015 is $375.

The issue price of a bond is equal to the present value of all future cash payments to be received from the bond.

Payments on installment notes normally include interest accruing to the date of the payment plus a portion of the principal.

A note is initially measured and recorded at its selling price.

Emilia Inc issued $200,000, 6%, 10-year bonds, with interest payable semiannually. The market rate on the issue date was 5.5%. Emilia received $206,948 in proceeds. Which statement best describes Emilia' responsibility to the bondholders?

Bonds that mature at different dates with the result that the entire debt is repaid gradually over a number of years are called:

Toopy Corp issues $650,000, 9%, 10-year bonds. The bonds trade at 105.5. The total amount of interest to be paid to the bondholders for the semiannual interest payments, assuming the effective interest method is used, is