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Exam 9: Long-Term Liabilities

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Question 21

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The balance sheet of Gatekeeper reports stockholders' equity of $800,000.The debt to equity ratio is 2.5.What is Gatekeeper's total liabilities?

A) $2,000,000
B) $320,000
C) $1,000,000

D) B) and C)
E) A) and C)

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Question 22

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A private placement is when a company chooses to sell the debt securities directly to a single investor.

A) True
B) False

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Question 23

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The times interest earned ratio compares interest expense with income available to pay interest charges.

Camp Elim obtains a $125,000,6%,five-year loan for a new camp bus on January 1,2018.What amount will be recorded for interest expense for the first payment on January 31,2018?

Ordinarily,the proceeds from the sale of a bond issue will be equal to:

When bonds are retired before their maturity date:

Given the information below,which bond(s) will be issued at a premium? $\begin{array} { | l | c | c | c | c | } \hline & \text { Bond 1 } & \text { Bond 2 } & \text { Bond 3 } & \text { Bond 4 } \\\hline \begin{array} { l } \text { Stated Rate of } \\\text { Return }\end{array} & 5 \% & 10 \% & 7 \% & 10 \% \\\hline \begin{array} { l } \text { Market Rate of } \\\text { Return }\end{array} & 7 \% & 8 \% & 7 \% & 9 \% \\\hline\end{array}$

The Viper retires a $40 million bond issue when the carrying value of the bonds is $42 million,but the market value of the bonds is $36 million.The entry to record the retirement will include:

Bond X and Bond Y are both issued by the same company.Each of the bonds has a face value of $100,000 and each matures in 10 years.Bond X pays 8% interest while Bond Y pays 7% interest.The current market rate of interest is 7%.Which of the following is correct?

Tony Hawk's Adventure (THA) issued callable bonds on January 1,2018.THA's accountant has projected the following amortization schedule from issuance until maturity: THA issued the bonds: $\begin{array} { | c | r | r | r | r | } \hline \text { Date } & \begin{array} { r } \text { Cash } \\\text { Paid }\end{array} & \begin{array} { r } \text { Interest } \\\text { Expense }\end{array} & \begin{array} { r } \text { Increase in } \\\text { Carrying } \\\text { Value }\end{array} & \begin{array} { r } \text { Carrying } \\\text { Value }\end{array} \\\hline 1 / 1 / 2018 & & & & \$ 194,758 \\\hline 6 / 30 / 2018 & \$ 7,000 & \$ 7,790 & \$ 790 & 195,548 \\\hline 12 / 31 / 2018 & 7,000 & 7,822 & 822 & 196,370 \\\hline 6 / 30 / 2019 & 7,000 & 7,865 & 865 & 197,225 \\\hline 12 / 31 / 2019 & 7,000 & 7,889 & 889 & 198,114 \\\hline 6 / 30 / 2020 & 7,000 & 7,925 & 925 & 199,039 \\\hline 12 / 31 / 2020 & 7,000 & 7,961 & 961 & 200,000 \\\hline\end{array}$

Term bonds require payments in installments over a series of years.Term bonds require payment of the full principal amount of the bond at a single maturity date.

Which of the following definitions describes a secured bond?

Which of the following is true regarding a company assuming more debt?

A $500,000 bond issue sold for $510,000.Therefore,the bonds:

The debt to equity ratio measures a company's risk and is calculated as total liabilities divided by stockholders' equity.

The true interest rate used by investors to value a bond is called the:

Interest expense is calculated as the carrying value times the market rate.

When bonds are issued at a premium and the effective interest method is used for amortization,at each subsequent interest payment date,the cash paid is:

The balance sheet of Gatekeeper reports total liabilities of $2,000,000.The debt to equity ratio is 2.5.What is Gatekeeper's stockholders' equity?

When bonds are issued at a discount and the effective interest method is used for amortization,at each subsequent interest payment date,the cash paid is: