Smartbook Assignment Chapter 9: Long-Term Liabilities

Emily uses a financial calculator to calculate the issue price of $100,000 face amount bonds. The bonds pay 6% interest semi-annually over a five-year period. The market interest rate is 6%. Select the correct input:

N = 10 FV = 100,000 I = 3

A corporation will issue bonds when

the interest on the bond plus the bond issue cost is less than the interest payments for a bank loan.

On January 2, 2018, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semiannually on June 30 and December 31. The bonds mature in 5 years. The bonds were issued at face amount. On the date of issue, Meister should recognize a liability of

$200,000.

On January 1, year 1, Ziegler issued 5-year bonds with a stated rate of 8% and a face amount of $100,000. The bonds pay interest semiannually. The market rate of interest was 10%. Calculate the issue price of the bonds. Round your answer to the nearest dollar.

$92,278

A series of equal amounts paid or received over equal time periods is called a

annuity

The mixture of debt financing and equity financing a company uses is referred to as the company's_______________ structure

capital

Tyler wants to calculate the issue price of bonds. He already knows the face amount and interest payment amount. He also needs to know the

number of periods

Which of the following information is necessary to calculate the issue price of bonds?

number of periods to maturity face amount of bonds interest payment each period

Tyler wants to calculate the issue price of bonds. He already knows the face amount and interest payment amount. He also needs to know the

number of periods to maturity.

the price of a bond includes

present value of the face amount plus the present value of the periodic interest payments

Neumann Corporation is planning to issues bonds with a face amount of $2 million. If Neumann's accountant, Betty, wants to calculate the expected issue she should calculate the ____ of the related future cash payments using the ____ interest rate.

present value; market

A company's capital structure refers to

the mixture of debt and equity used to finance the company.

Identify the characteristics of an annuity.

Equal time periods between payment dates A series of amounts that are equal

which of the following statements are true

Bonds may sell below, above, or at their face amount.

Bonds and leases are normally classified as ______ liabilities.

long term

A bond that sells for more than its face amount is sold at a(n)

premium

which of the following are correct regarding bonds?

-They obligate the issuing company to repay the bonds at a specific date. -They obligate the issuing company to pay a specific amount.

A formal debt instrument that obligates the borrower to repay a stated amount (referred to as the principal or face amount) at a specified maturity date can be a note or a(n)

bond

On January 1, year 1, Klondike issued 10-year bonds with a stated rate of 10% and a face amount of $100,000. The bonds pay interest annually. The market rate of interest was 12%. Calculate the issue price of the bonds. Round your answer to the nearest dollar.

$88,699

has grown into the most popular method of external financing of corporate assets in America.

leasing

In the U.S., the most popular method for financing corporate long-term assets is:

leassing

Smith uses a financial calculator to calculate the issue price of $800,000 face amount bonds. The bonds pay 8% interest semi-annually over a five-year period. The market interest rate is 8%. Select the correct input:

I = 4 N = 10 FV = $800,000

Which of the following are possible benefits of leasing an asset rather than purchasing an asset?

Improvement in cash flows Lower periodic payments on the asset Protection against declining asset value

Which of the following are methods of long-term financing with debt?

Leases Bonds Notes payable

When is it more economical for a company to borrow funds by issuing bonds?

When the interest savings exceed the additional bond issuance costs

In order to expand its business, Mueller Inc. is borrowing $1 million from its bank. Mueller is utilizing this type of financing:

debt

__________ financing refers to borrowing money from creditors.

debt

Financing with ____________ requires borrowing, whereas financing with__________requires issuing shares of stock

debt equity

In order to expand its business, Mueller Inc. is selling $10 million in common stock. Mueller is utilizing this type of financing:

equity

___________financing refers to obtaining investment from stockholders

equity

The two types of financing are

equity and debt financing.

Merkel Corporation issues $200,000 face amount bonds with a stated interest rate of 6%. If the market interest rate is 6%, the bonds will issue at

face amount.

An advantage to financing with debt is that

interest is tax deductible

Debt is considered a lower cost method of financing than equity because

interest on debt is tax deductible.

A contract in which an owner provides a user the right to use an asset in return for periodic cash payments over a period of time is called a(n)

lease

Improved cash flows is a common advantage of acquiring equipment through

lease