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Exam 10: Accounting for Long-Term Debt

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Question 81

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Which of the following is not a common restrictive covenant included in bond indentures to reduce risk to the investor?

A) Maintenance of designated thresholds measured by financial ratios
B) Restrictions on future borrowing activities
C) Requirements that the names and addresses of the bondholders be registered with the bond issuer
D) Limitations on the payment of dividends

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

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Question 82

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Explain the concept of financial leverage.

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Leverage refers to the concept...

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Question 83

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Amortization of a discount on bonds payable is an asset use transaction.

Which of the following conditions indicate a company has a relatively high level of financial risk?

Maitland Corporation issued ten-year,$200,000,8% bonds on July 1,2016.The bonds pay interest semiannually.Maitland made the following entry relating to the first interest payment made on December 31,2016: Required: Assuming that Maitland amortizes bond premiums using the straight line method,how much cash did Maitland receive for the issuance of the bond on July 1,2016?

Use the following to answer questions On January 1,2016 the Mahoney Company borrowed $324,000 cash from Sun Bank by issuing a five-year 8% term note.The principal and interest are repaid by making annual payments beginning on December 31,2016.The annual payment on the loan based on the present value of annuity factor would be $81,150. -The amount of principal repayment included in the December 31,2016 payment is:

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

Unsecured bonds are called:

On January 1,2016,Daniels Company issued bonds with a face value of $500,000,receiving $496,000 cash.When the bonds mature,Daniels will have to pay the face value of the bonds to the bondholders.

The times-interest-earned ratio is calculated by which of the following?

Discuss the advantages of establishing a line of credit.

A discount or premium on bonds payable can be defined by which of the following statements?

Serial bonds are issued based on the overall strength of the borrower's credit.

Davis Corporation borrowed $50,000 on January 1,2016.The loan is for a ten-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 2016 that is interest expense is $4,500.

Use the following to answer questions On January 1,2016 the Mahoney Company borrowed $324,000 cash from Sun Bank by issuing a five-year 8% term note.The principal and interest are repaid by making annual payments beginning on December 31,2016.The annual payment on the loan based on the present value of annuity factor would be $81,150. -Which choice reflects the financial statement effects of the cash payment on December 31,2016?

Why does interest expense decrease during the life of an installment note payable? How is the amount of interest expense computed?

Bluestone Company issued bonds with a face value of $500,000 on January 1,2016 at 90.Which of the following journal entries would be required to record the bond issue?