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Exam 10: Long-Term Liabilities

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Question 51

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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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depreciati...

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Question 52

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Interest expense is computed annually when a bond is issued for other than its face value.For a bond issued at a premium,how will this component change under the effective interest method as the bond approaches maturity?

A) Decrease
B) Increase
C) Remain constant
D) Not enough information given to decide

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Question 53

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Which of the following statements is true with respect to long-term liabilities?

Amortization of a bond discount results in a(n)

The terms of a lease can only be structured in one way to meet the lessor and lessee and satisfy accounting standards.

Which of the following items should not appear in the Long-Term Liability section of the balance sheet?

On January 2,2017,Concrete Master Construction,Inc.issued $500,000,ten-year bonds for $574,540.The bonds pay interest on June 30 and December 31.The face rate is 8%,and the market rate is 6%.What is the carrying value of the bonds after the first interest payment is made on June 30,2017?

Sewickley Company Use the Liabilities section of Sewickley Company's balance sheet to answer the questions that follow. $\begin{array}{c}\text {Sewickley Company}\\\text {Consolidated Balance Sheets}\\ \text {(in millions)}\\\begin{array}{lrr}&\quad\quad\text { December 31,} \\&2018 & 2017 \\\text { Current liabilities }\\\text { Short-term borrowings } & \$ 354 & \$ 202 \\\text { Accounts payable and other current liabilities } & 4,461 & 4,529 \\\text { Income taxes payable } & \underline{183} & \underline{64} \\\text { Total current liabilities } & \$ 4,998 & \$ 4,795\\\\\text { Long-term debt } & \$ 2,651 & \$ 3,009 \\\text { Other long-term li abilities } & 3,876 & 3,960 \\\text { Deferred income taxes (assume all are long-term) } & 1,496 & 1,367\end{array}\end{array}$ -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?

The face rate is also called the nominal or stated rate.

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 of interest at the time of issuance was 6%. Required 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? What amount of interest expense should be reported 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?

An example of a cash flow related to a liability that would not appear in the Financing Activities category of the statement of cash flows is

Serial bonds are unique because the interest is paid as a series of daily payments.

In an operating lease,the lessee has acquired sufficient rights of ownership and control of the property to be considered its owner.

Which of the following terms does not describe the interest rate printed on the bond certificate?

The interest rate used to calculate interest expense in the effective interest method of amortization is equal to the market rate of interest at the time the bonds are issued.

The effective interest rate method of amortization amortizes the discount or premium in a manner that produces a constant amount of interest expense from period to period.

Shuttle Master Airlines has leased an aircraft from Streamline Aircraft Company.The annual payments are $1,000,000,and the life of the lease is 18 years.It is estimated that the useful life of the aircraft is 20 years.How would Shuttle Master Airlines record the acquisition of the aircraft? The effective rate of interest is 9%.

The amortization of bond discount increases the effective interest expense incurred each period for the issuer while amortization of bond premium decreases it.

Surplus Mining Company has leased a machine from Craft Machinery Company.The annual payments are $6,000,and the life of the lease is eight years.It is estimated that the useful life of the machine is nine years.How would Surplus Mining record the acquisition of the machine?

When using the indirect method for preparing the statement of cash flows,all of the following will appear in the Operating Activities section except