978-1337276337 Test Bank Chapter 10 Part 4

Chapter 10

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160. When a bond is retired early and the redemption price is greater than the bond’s carrying value, there will be a(n)

__________ on redemption.

161. A(n) __________ lease is recorded on the lessee’s balance sheet as an asset and related liability.

162. Although operating leases are not recorded on the balance sheet by the lessee, they are disclosed in the __________.

163. For a capital lease, the lessee must record both an asset and a liability. The amount of the asset is subsequently

reduced by the process of __________.

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164. In calculating deferred income taxes, __________ occur when an item is included in the tax calculation and is never

included for financial accounting purposes, or vice versa.

165. An alternate term for a timing difference is a __________.

Chapter 10

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173. The process of transferring a portion of premium or discount to interest expense. This method transfers an amount

resulting in a constant effective interest rate.

174. The interest rate stated on the bond certificate. It is also called the nominal or coupon rate.

175. The face value of a bond plus the amount of unamortized premium or minus the amount of unamortized discount.

176. The interest rate that bondholders could obtain by investing in other bonds that are similar to the issuing firm’s

bonds.

177. The difference between the carrying value and the redemption price at the time bonds are redeemed. This amount is

presented as an income statement account.

178. The total of the present value of the cash flows produced by a bond. It is calculated as the present value of the

annuity of interest payments plus the present value of the principal.

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179. Review the consolidated balance sheets of Sewickley Company.

Required

(1) Which long-term liability would also be listed in the Short-Term Liability section? Why?

(2) What percent of the total liabilities for 2018 and 2017 are long-term liabilities? What implication does this have?

180. Review the consolidated balance sheets of Sewickley Company.

Required

Which one of the liabilities shown in the balance sheets is used in the calculation of the debt-to-equity ratio?

If we can assume that the stockholders’ equity total remained relatively constant for the two years, how would the ratio

change (increase/decrease) from 2017 to 2018? What would this say about the company’s financial position?

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181. Review the consolidated balance sheets of Sewickley Company.

Required

(1) What are the total long-term liabilities for the two years presented?

(2) What is the percent increase/decrease of long-term liabilities from 2017 to 2018? Which liability appears to have

caused the greatest change?

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182. On March 1, 2017, Farmer Co. issued at a price of 100 $20 million of 8%, 25-year bonds payable. Interest is payable

semiannually each March 1 and September 1.

Required

Determine the impact on the accounting equation of the adjusting entry necessary at December 31, 2017, regarding this

bond issue.

183. East Liberty Corp. received authorization on December 31, 2017, to issue $7,000,000 face value of 6%, ten-year

bonds. The interest payment dates are June 30 and December 31. All the bonds were issued at par, plus accrued interest,

April 1, 2018. The bonds are callable by East Liberty at any time at 102.

Required

Determine the impact on the accounting equation of the journal entry to record issuance of the bonds on April 1, 2018.

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184. East Liberty Corp. received authorization on December 31, 2017, to issue $7,000,000 face value of 6%, ten-year

bonds. The interest payment dates are June 30 and December 31. All the bonds were issued at par, plus accrued interest,

April 1, 2018. The bonds are callable by East Liberty at any time at 102.

Required

Determine the impact on the accounting equation of the journal entry to record the first semiannual interest payment on

the bonds at June 30, 2017.

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185. East Liberty Corp. received authorization on December 31, 2017, to issue $7,000,000 face value of 6%, ten-year

bonds. The interest payment dates are June 30 and December 31. All the bonds were issued at par, plus accrued interest,

1. What is the amount of bond interest expense that appears on East Liberty’s 2018 income statement relating to these

2. What is the amount of accrued bond interest expense that appears on East Liberty’s balance sheet at December 31,

2018, with respect to these bonds?

2. $0 accrued bond interest payable. The interest payment date is December 31; therefore, interest for the last six months

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186. East Liberty Corp. received authorization on December 31, 2017, to issue $7,000,000 face value of 6%, ten-year

bonds. The interest payment dates are June 30 and December 31. All the bonds were issued at par, plus accrued interest,

April 1, 2018. The bonds are callable by East Liberty at any time at 102.

Required

East Liberty exercises the call provision and retires one-half of the bond issue on July, 1, 2020. Determine the impact on

the accounting equation of the journal entry to record this transaction on July 1, 2020.

187. A bond payable is dated January 1, 2017, and is issued on that date. The face value of the bond is $120,000, and the

face rate of interest is 6%. The bond pays interest semiannually. The bond will mature in five years.

1. What will be the issue price of the bond if the market rate of interest is 6% at the time of issuance?

2. What will be the issue price of the bond if the market rate of interest is 10% at the time of issuance?

2. $120,000 × 0.614 = $73,680 Table 9-2 n = 10, i = 5%

$3,600 × 7.722 = $27,799 Table 9-4 n = 10, i = 5%

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188. A company issued ten-year bonds with a par value of $20,000,000 and an 8% annual face on January 2, 2017. The

issue price of the bond issue was $19,866,397 which reflected an 8.1% effective interest rate.

Required

2017. Any premium or discount should be amortized using the effective interest rate method.

c)

2018.

d)

Determine the effect on the accounting equation upon recognizing the interest expense at December 31, 2018. Any

premium or discount should be amortized using the effective interest rate method.

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190. Bonds payable are dated January 1, 2017, and are issued on that date. The face value of the bonds is $200,000, and

the face rate of interest is 8%. The bonds pay interest semiannually. The bonds will mature in five years. The market rate

1. What is the bond issuance price?

2. Using the effective interest amortization method, what amount should be amortized for the first six-month period?

3. Using the effective interest amortization method, what amount should be amortized for the period from July 1 to

December 31, 2017? What amount of interest expense should be reported for the period from July 1 to December 31,

2017?

2. Amount amortized is $1,488.80.

3. Amount amortized is $1,533.46.