A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity for 7 years at 9% is 5.0330. The present value of the loan is: Homework Help

1. Consolidated financial statements:  (Points : 5)

Show the results of operations, cash flows, and the financial position of all entities under a parent’s control.

Show the results of operations, cash flows, and the financial position of the parent only.

Show the results of operations, cash flows, and the financial position of the subsidiary only.

Include the investments account on the balance sheet.

Do not include a balance sheet.

2. A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity for 7 years at 9% is 5.0330. The present value of the loan is: (Points : 5)

$9,000.

$5,033.

$63,000.

$57,330.

$45,297.

3. A company’s debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk in the firm’s financing structure decreased during Year 2.  (Points : 5)

True

False

4. A company had net income of $2,660,000, net sales of $25,000,000, and average total assets of $8,000,000. Its return on total assets equals:  (Points : 5)

3.01%.

10.64%.

32.00%.

33.25%.

300.75%.

5. A bond traded at 102½ means that:  (Points : 5)

The bond pays 2.5% interest.

The bond traded at $1,025 per $1,000 bond.

The market rate of interest is 2.5%.

The bonds were retired at $1,025 each.

The market rate of interest is 2 ½ % above the contract rate.

6. Two common ways of retiring bonds before maturity are to (1) exercise a call option or (2) purchase them on the open market.  (Points : 5)

True

False

7. A basic present value concept is that cash paid or received in the future is worth less than the same amount of cash today.  (Points : 5)

True

False

8. The contract between the bond issuer and the bondholders, which identifies the rights and obligations of the parties, is called a(n):  (Points : 5)

Debenture.

Bond indenture.

Mortgage.

Installment note.

Mortgage contract.

9. The present value of an annuity can be best or easier computed as the sum of the individual future values for each payment.  (Points : 5)

True

False

10. The debt-to-equity ratio:  (Points : 5)

Is calculated by dividing book value of secured liabilities by book value of pledged assets.

Is a means of assessing the risk of a company’s financing structure.

Is not relevant to secured creditors.

Can always be calculated from information provided in a company’s income statement.

Must be calculated from the market values of assets and liabilities.

11. An investor purchased $50,000 of bonds and holds them to maturity. The investor’s journal entry to record the proceeds should include a debit to Cash for $50,000 and a credit to Long-Term Investments for $50,000.  (Points : 5)

True

False

12. Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.  (Points : 5)

True

False

13. A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 8%. The amount of interest owed to the bondholders for each semiannual interest payment is.  (Points : 5)

$60,000.

$33,750.

$67,500.

$30,000.

$375,000.

14. A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137.13. The present value of the note is:  (Points : 5)

$75,137.13.

$94,013.13.

$300,000.00.

$375,137.13.

$197,810.00.

15. If the exchange rate for Canadian and U.S. dollars is 0.82777 to 1, this implies that 3 Canadian dollars will buy ____ worth of U.S. dollars.  (Points : 5)

$0.2759

$0.82777

$1.82777

$2.48

None of these.

16. Debt securities:  (Points : 5)

Can be short-term investments.

Can be long-term investments.

Can have a cost higher than the maturity value of the debt security.

Can have a cost lower than the maturity value of the debt security.

All of these.

17. 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. Prepare the journal entry to record the first interest payment.  (Points : 10)

18. A company paid $500,000 for 12% bonds with a par value of $500,000. The bonds pay 6% interest semiannually on September 1 and March 1. The company intends to hold the bonds until they mature. Prepare the journal entries for the following dates and transactions related to this bond acquisition.

(1)Bonds purchased on September 1.

(2) Year-end adjusting entry, December 31.

(3) Receipt of semiannual interest March 1.

(4) Redemption of the bonds at maturity on August 31.  (Points : 10)