ACCTG 5 - Long Term Liability

85. On January 1, Martinez Inc. issued $3,000,000, 11% bonds for $3,195,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond premium. At the end of the first year, Martinez should report bonds payable of:

a.   $3,185,130

b.   $3,184,500

c.   $3,173,550

d.   $3,165,000

  86.     At the beginning of 2010, Winston Corporation issued 10% bonds with a face value of $600,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $555,840 to yield 12%. Winston uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2010? (Round your answer to the nearest dollar.)

a.   $66,500

b.   $66,700

c.   $66,901

d.   $68,832

  87.     Franzia Company issues €10,000,000, 7.8%, 20-year bonds to yield 8% on July 1, 2011. Interest is paid on July 1 and January 1. The proceeds from the bonds are €9,802,073. What amount of interest expense will be reported on the 2012 income statement?

a.   €392,083

b.   €780,000

c.   €784,249

d.   €784,419

  88.     Franzia Company issues €10,000,000, 7.8%, 20-year bonds to yield 8% on July 1, 2011. Interest is paid on July 1 and January 1. The proceeds from the bonds are $9,604,145. The balance reported in the bonds payable account on the December 31, 2011 statement of financial position?

a.   €9,802,073

b.   €9,804,156

c.   €9,806,322

d.   €10,000,000

  89.     Bangalor Company issues Rs10,000,000, 8%, 10-year bonds at 96.5 on July 1, 2011. Interest is paid on July 1 and January 1. The journal entry to record the issuance will include

a.   a debit to cash for Rs10,000,000

b.   a credit to cash for Rs9,650,000

c.   a debit to discount on bonds payable for Rs350,000

d.   a credit to bonds payable for Rs9,650,000

  90.     On January 1, 2011, Chang Company sold HK$10,000,000 of its 10%, bonds for HK$8,852,960, a yield of 12%. Interest is payable semiannually on January 1 and July1. The June 30, 2011 entry to record the first interest payment will include

a.   a debit to Bonds Payable for HK$531,178.

b.   a credit to Bonds Payable for HK$1,062,355.

c.   a debit to Cash for HK$600,000.

d.   a credit to Interest Expense for HK$442,648.

  91.     On January 1, 2011, Chang Company sold bonds with a face amount of CHF50,000,000 at 97, a yield of 11%. Interest is payable semiannually at 10% on July 1 and December 31. The entry to record the July 1, 2011 interest payment will include

a.   a debit to Bonds Payable for CHF2,500,000.

b.   a credit to Bonds Payable for CHF2,667,500.

c.   a credit to Cash for CHF5,500,000.

d.   a debit to Interest Expense for CHF2,425,000.

  92.     On January 1, 2011, Lorry Manufacturing Company purchased equipment from Wales Inc. There was no established market price for the equipment which has an 8 year life and no salvage value. Lorry gave Wales a £105,000 zero-interest-bearing note payable in 3 equal annual installments of £35,000, with the first payment due December 31, 2011. The prevailing rate of interest for a note of this type is 8%. The present value of the note at 8% was £90,199. Assuming that Lorry uses the straight-line method of depreciation, what amounts will be reported in the company's 2011 income statement for interest expense and depreciation expense for the note and equipment?

a.   £7,216; £11,275

b.   £7,216; £30,066

c.   £8,400; £13,125

d.   £1,750; £8,750

  93.     On January 1, 2011, Jantzen Company sold land to Dansko Company. There was no established market price for the land. Dansko gave Jantzen a CHF2,400,000 Zero-interest-bearing note payable in three equal annual installments of CHF800,000 with the first payment due December 31, 2011. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a CHF2,400,000 note payable in three equal annual installments of CHF800,000 at a 10% rate of interest is CHF1,989,600. The note will be reported on Dansko's 2011 statement of financial position at a carrying value of

a.   CHF1,989,600

b.   CHF2,126,400

c.   CHF2,188,560

d.   CHF2,400,000

  94.     On January 1, 2011, Li Company purchased equipment from Keiko Distributors. There was no established market price for the equipment which has a 10 year life and no salvage value Li gave Keiko a HK$200,000 zero-interest-bearing note payable in 5 equal annual installments of HK$40,000, with the first payment due December 31, 2011. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was HK$144,200. Assuming that Li uses the straight-line method of depreciation, what amounts will be reported on the company's 2011 income statement for interest expense and depreciation expense for the note and equipment?

a.   HK$0; HK$20,000

b.   HK$18,000; HK$20,000

c.   HK$12,978; HK$14,420

d.   HK$14,420; HK$28,840

  95.     On January 1, 2010, Ann Price loaned $45,078 to Joe Kiger. A zero-interest-bearing note (face amount, $60,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2012. The prevailing rate of interest for a loan of this type is 10%. The present value of $60,000 at 10% for three years is $45,078. What amount of interest income should Ms. Price recognize in 2010?

a.   $4,508.

b.   $6,000.

c.   $18,000.

d.   $13,524.

  96.     On January 1, 2010, Jacobs Company sold property to Dains Company which originally cost Jacobs $760,000. There was no established exchange price for this property. Dains gave Jacobs a $1,200,000 zero-interest-bearing note payable in three equal annual installments of $400,000 with the first payment due December 31, 2010. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $1,200,000 note payable in three equal annual installments of $400,000 at a 10% rate of interest is $994,800. What is the amount of interest income that should be recognized by Jacobs in 2010, using the effective-interest method?

a.   $0.

b.   $40,000.

c.   $99,480.

d.   $120,000.

  97.     On January 1, 2010, Crown Company sold property to Leary Company. There was no established exchange price for the property, and Leary gave Crown a $2,000,000 zero-interest-bearing note payable in 5 equal annual installments of $400,000, with the first payment due December 31, 2010. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was $1,442,000 at January 1, 2010. What should be the balance of the Notes Payable account on the books of Leary at December 31, 2010 after adjusting entries are made, assuming that the effective-interest method is used?

a.   $2,000,000

b.   $1,571,780

c.   $1,553,600

            d.   $1,442,000

  98.     Kant Corporation retires its $100,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $96,250. The entry to record the redemption will include a

a.   credit of $3,750 to Loss on Bond Redemption.

b.   debit of $96,250 to Bonds Payable.

c.   debit of $5,750 to Gain on Bond Redemption.

d.   debit of $3,750 to Bonds Payable.

  99.     Carr Corporation retires its $100,000 face value bonds at 105 on January 1, following the payment of 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 $103,745 to Bonds Payable.

c.   credit of $1,255 to Gain on Bond Redemption.

d.   debit of $3,745 to Bonds Payable.

100.     At December 31, 2010 the following balances existed on the books of Foxworth Corporation:

Bonds Payable                                                      $1,840,000

Interest Payable                                                           50,000

If the bonds are retired on January 1, 2011, for $2,040,000, what will Foxworth report as a loss on redemption?

a.   $250,000

b.   $200,000

c.   $150,000

d.   $100,000

101.     At December 31, 2010 the following balances existed on the books of Rentro Corporation:

Bonds Payable                                                      $1,380,000

Interest Payable                                                           37,000

If the bonds are retired on January 1, 2011, for $1,530,000, what will Rentro report as a loss on redemption?

a.   $37,000

b.   $113,000

c.   $150,000

d.   $187,000

102.     The 10% bonds payable of Nixon Company had a net carrying amount of $570,000 on December 31, 2010. The bonds, which had a face value of $600,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On
July 2, 2011, several years before their maturity, Nixon retired the bonds at 102. The interest payment on July 1, 2011 was made as scheduled. What is the loss that Nixon should record on the early retirement of the bonds on July 2, 2011? Ignore taxes.

a.   $12,000.

b.   $37,800.

c.   $33,600.

d.   $42,000.

103.     The 12% bonds payable of Nyman Co. had a carrying amount of $832,000 on
December 31, 2010. The bonds, which had a face value of $800,000, were issued at a premium to yield 10%. Nyman uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On June 30, 2011, several years before their maturity, Nyman retired the bonds at 104 plus accrued interest. The loss on retirement, ignoring taxes, is

a.   $0.

b.   $6,400.

c.   $9,920.

d.   $32,000.

104.     Cadbury Company's 10 year, 8% £10,000,000 face value of bonds have a carrying value of £9,672,300 on December 31, 2011. The bonds pay interest semiannually at 8% on June 30 and December 31. On January 1, 2012, the bonds are called at 102. What loss would be reported for the called bonds on the company's 2012 income statement?

a.   £102,000 loss.

b.   £200,000 loss.

c.   £327,700 loss.

d.   £527,700 loss.

105.     The December 31, 2011, statement of financial position of Bordeaux Corporation includes the following items:

                        9% bonds payable due December 31, 2018              €3,081,000

The bonds were issued on December 31, 2008, and have a face amount of €3,000,000 with interest payable semi-annually on July 1 and December 31 of each year. On January 1, 2012, Bordeaux retired €1,000,000 of these bonds at 98. What amount should Bordeaux report on the company's 2012 income statement as gain or loss on the retirement of the bonds?

a.   €47,000 loss.

b.   €141,000 loss.

c.   €7,000 loss.

d.   €21,000 loss.

106.     At December 31, 2011 the following balances were reported on the statement of financial position of Yang Corporation:

Bonds Payable                       ¥1,472,000,000

Interest Payable                            33,750,000

            The bonds have a face amount of ¥1,500,000,000. If the bonds are retired on January 1, 2012 at 101, what amount of gain or loss will Yang report on the redemption?

a.   ¥15,000,000

b.   ¥28,000,000

c.   ¥43,000,000

d.   ¥61,759,000

Use the following information for questions 107 and 108:

On December 31, 2008, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $600,000 note with $60,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte a building that has a fair value of $590,000, an original cost of $530,000, and accumulated depreciation of $130,000.

107.     Nolte should recognize a gain or loss on the disposal of the building of

a.   $0.

b.   $190,000 gain.

c.   $60,000 gain.

d.   $70,000 loss.

108.     Nolte should recognize a gain on the settlement of the debt of

a.   $0.

b.   $10,000.

c.   $60,000.

d.   $70,000.

            109.     Putnam Company’s 2010 financial statements contain the following selected data:

Income taxes                                     $40,000

Interest expense                                  20,000

Net income                                          60,000

            Putnam’s times interest earned for 2010 is

a.   3 times

b.   4 times.

c.   5 times.

d.   6 times.

110.     In the recent year Hill Corporation had net income of $140,000, interest expense of $40,000, and tax expense of $20,000. What was Hill Corporation's times interest earned ratio for the year?

a.   5.0

b.   4.0

c.   3.5

d.   3.0

111.     In recent year Cey Corporation had net income of $250,000, interest expense of $50,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year?

a.   $500,000

b.   $450,000

c.   $400,000

d.   None of the above.

112.     The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2010, contained the following accounts.

5-year Bonds Payable 8%                                    $1,600,000

Bond Interest Payable                                                 50,000

Notes Payable (3 mo.)                                                 40,000

Notes Payable (5 yr.)                                                 165,000

Mortgage Payable ($15,000 due currently)               200,000

Salaries Payable                                                          18,000

Taxes Payable (due 3/15 of 2011)                              25,000

The total non-current liabilities reported on the statement of financial position are

a.   $1,865,000.

b.   $1,850,000.

c.   $1,965,000.

d.   $1,950,000.

  85.          b          ($3,000,000 × .11) – ($3,195,000 × .10) = $10,500

                             ($3,195,000 – $10,500 = $3,184,500.

  86.          c          ($555,840 × .06) = $33,350; [$33,350 – ($600,000 × .05)] = $3,350

                             ($555,840 + $3,350) × .06 = $33,551

                             $33,350 + $33,551 = $66,901.

  87.          d          (€9,802,073 × .04) – (€10,000,000 ×.039) = €2,083; (€9,802,073 + €2,083) × .04 = €392,166 – €390,000 = €2,166; (€9,802,073 + €2,083 + €2,166) × .04 = €392,253 – €390,000 = €2,253; €392,166 + €392,253 = €784,419.

  88.          b          €9,802,073 + €2,083 = €9,804,156.

  89.          d          Rs10,000,000 × .965 = Rs9,650,000.

  90.          a          HK$8,852,960 × 12% × 6/12 = HK$531,178

  91.          b          (CHF50,000,000 × .97)(.055) = CHF2,667,500

  92.          a          £90,199 × .08 = £7,216; £90,199/ 8 = £11,275

  93.          c          CHF1,989,600 + (CHF1,989,600 × .10) = CHF2,188,560.

  94.          c          HK$144,200/10 = HK$14,420; HK$144,200 × .09 = HK$12,978.

  95.          a          $45,078 × .10 = $4,508.

  96.          c          $994,800 × .10 = $99,480.

  97.          b          $2,000,000 – $1,442,000 – ($1,442,000 × .09) = $428,220;

                             $2,000,000 -- $428,220 = $1,571,780.

  98.          b          $100,000 – $96,250 = $3,750 discount.

  99.          b          $103,745 – $100,000 = $3,745 premium.

100.          b          $2,040,000 -- $1,840,000  = $200,000.

101.          c          $1,530,000 -- $1,380,000 = $150,000.

102.          b          $570,000 + [($570,000 × .06) – ($600,000 × .05)] = $574,200 (CV of bonds)

                             $574,200 – ($600,000 × 1.02) = ($37,800).

103.          b          $832,000 – [($800,000 × .06) – ($832,000 × .05)] = $825,600 (CV of bonds)

                             ($800,000 × 1.04) – $825,600 = $6,400.

104.          d          £10,200,000 – £9,672,300 = £527,700

105.          a          (€3,081,000/ 3) – (€1,000,000 × .98) = €47,000 gain.

106.          c          (¥1,500,000,000 × 1.01) – ¥1,472,000,000 = ¥43,000,000

107.          b          $590,000 – ($530,000 – $130,000) = $190,000.

108.          d          [($600,000 + $60,000)] – $590,000 = $70,000.

                             $60,000 + $40,000 + $20,000

109.          d          ————————————— = 6 times.

                                                $20,000

110.          a          ($140,000 + $40,000 + $20,000) ÷ $40,000 = 5.0.

111.          c          ($250,000 + $50,000 + X) ÷ $50,000 = 9

                             ($300,000 + X) = 9 × $50,000

                             X = $150,000; IBT = $400,000 ($250,000 + $150,000).

112.          d          $1,600,000 + $165,000 + ($200,000 – $15,000) = $1,950,000.