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Exam 10: Accounting for Long-Term Debt

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Question 61

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Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts.Increase = I Decrease = D Not Affected = NAOn January 1, Year 1, Flagler Corporation borrowed $20,000 on a line-of-credit from City Bank.

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Borrowing on a line of credit...

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Question 62

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Alexander Corporation issued 20-year bonds at a discount in Year 1. Will Alexander's net income for Year 1 be higher, lower, or the same as it would have been had the bonds been issued at face value? Why?

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Net income would be lower. A discount ac...

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Question 63

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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? (Do not round your intermediate calculations.)

How are bonds payable usually classified on the balance sheet?

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?

On January 1, Year 1, Hawk Company borrowed $100,000 from the Community Bank, issuing a three-year, 8% note payable. Payments of $38,803.35 are to be made each year on December 31. The payment will include both the interest and a portion of the principal. (Round your answers to two decimal points.)Required:Using the table below, prepare an amortization schedule for the note.

On January 1, Year 1, Hanover Corporation issued bonds with a $42,750 face value, a stated rate of interest of 8%, and a 5-yearterm to maturity. The bonds were issued at 97. Hanover uses the straight-line method to amortize bond discounts and premiums. Interest is payable in cash on December 31 each year. How much interest expense will Hanover report on its income statement on December 31, Year 1?

On January 1, Year 1, Jones Company issued bonds with a $200,000 face value, a stated rate of interest of 8.5%, and a 5-year term to maturity. The bonds were issued at 98. 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 amount of cash outflow from operating activities shown on Jones' statement of cash flows for the year ending December 31, Year 2?

Franklin Company obtained a $160,000 line of credit from State Bank on January 1, Year 1. The company agreed to accept a variable interest rate that was set at 2% above the bank's prime lending rate. The bank's prime rate of interest and the amounts borrowed or repaid during the first three months of Year 1 are shown in the following table. Assume that Franklin borrows or repays on the first day of each month. What is the amount of interest expense recognized in March? (Round your answer to the nearest dollar.)

Indicate whether each of the following statements is true or false.a)EBIT stands for earnings before income taxes.b)EBIT can be used in the computation of the return-on-assets ratio.c)A low times-interest-earned ratio is a sign of a high-risk company.d)Dividends are deductible in the determination of taxable income.e)Interest is deducted on the income statement but is ignored on the tax return.

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts.Increase = I Decrease = D Not Affected = NAOn December 31, Year 1, Briand Company paid cash and recognized interest expense on bonds it had issued at 98 on January 1, Year 1. The company uses the effective interest method to amortize bond discounts and premiums.

Which of the following is the term used to describe bonds that mature at specified intervals throughout the life of the issuance?

If bonds are issued at a premium, the bond issuer will pay the bondholders an amount lower than the issue price at maturity.

What is the market rate of interest? What factors influence the market rate of interest? When the market rate of interest is higher than the stated rate of interest, will the bonds sell at a premium or at a discount?

Pace Company issued bonds with a face value of $200,000 at 97. How does the issuance affect the company's accounting equation?

Kier Company issued $480,000 in bonds on January 1, Year 1. The bonds were issued at face value and carried a 5-year term to maturity. The bonds have a 6.00% stated rate of interest and interest is payable in cash on December 31 each year. Based on this information alone, what are the amounts of interest expense and cash flows from operating activities, respectively, that will be reported in the financial statements for the year ending December 31, Year 1?

Spokane Company called in bonds at a price that was above the carrying value of the bond liability. Which of the following shows how this event will affect the financial statements?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA On December 31, Year 1, Kirkland Company paid cash and recognized interest expense on bonds that it had issued at 101.5 on January 1, Year 1. The company uses the straight-line method to amortize bond discounts and premiums.

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 begins its loan transactions with Centennial Bank by borrowing $2,000 on January 1, Year 1. Which of the following shows the effect of this event on the financial statements?

Regardless of the specific type of long-term debt, which of the following is normally an expectation with regards to debt transactions?