70.2K

Verified Solution

Link Copied!

13. On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The carrying value of the bonds immediately after the first interest payment is: Multiple Choice $400,000. $399,800. $400,200. $395,800. $396,200.

14. On January 1, a company issues bonds dated January 1 with a par value of $700,000. The bonds mature in 3 years. The contract rate is 10%, and interest is paid semiannually on June 30 and December 31. The bonds are sold for $682,000. The journal entry to record the first interest payment using straight-line amortization is:

Multiple Choice

Debit Interest Payable $35,000; credit Cash $35,000.

Debit Bond Interest Expense $35,000; credit Cash $35,000.

Debit Bond Interest Expense $38,000; credit Discount on Bonds Payable $3,000; credit Cash $35,000.

Debit Bond Interest Expense $32,000; debit Discount on Bonds Payable $3,000; credit Cash $35,000.

Debit Bond Interest Expense $35,000; credit Premium on Bonds Payable $3,000; credit Cash $32,000.

15.Saffron Industries most recent balance sheet reports total assets of $42,000,000, total liabilities of $16,000,000 and total equity of $26,000,000. Management is considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding bonds. What effect, if any, would prepaying the bonds have on the company's debt-to-equity ratio?

Multiple Choice

Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .50.

Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .57.

Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .50.

Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .57.

Prepaying the debt would cause the firm's debt-to-equity ratio to remain unchanged.

16. Charger Company's most recent balance sheet reports total assets of $28,413,000, total liabilities of $16,113,000 and total equity of $12,300,000. The debt to equity ratio for the period is (rounded to two decimals):

Multiple Choice

0.57

1.76

0.43

0.76

1.31

Answer & Explanation Solved by verified expert

See Answer