Question :
81. Plantation RestaurantOn January 1, Year 7, Plantation Restaurant planning to : 1230295
81. Plantation Restaurant
On January 1, Year 7, Plantation Restaurant is planning to enter as the lessee into the two lease agreements described below. Each lease is noncancelable, and Plantation does not receive title to either leased property during or at the end of the lease term. All payments required under these agreements are due on January 1 each year.
Lessor
Hadaway Inc.
Cutter Electronics
Type of property
Oven
Computer
Yearly rental (not including executory costs)
$15,000
$4,000
Lease term
10 years
3 years
Economic life
15 years
5 years
Purchase option
None
$3,000
Renewal option
None
None
Fair market value at inception of lease
$125,000
$10,200
Unguaranteed residual value
None
$2,000
Lessee’s incremental borrowing rate
10%
10%
Executory costs paid by
Lessee
Lessor
Annual executory costs
$800
$500
Present value factor at 10% (of an annuity due)
6.76
2.74
(CMA adapted, Dec 93 #28) Refer to the Plantation Restaurant example. Plantation Restaurant should treat the lease agreement with Cutter Electronics as a(n)
A. operating lease, charging $3,400 in rental expense and $500 in executory costs to annual operations
B. operating lease, charging $4,000 in rental expense and $500 in executory costs to annual operations
C. operating lease, charging $3,500 in rental expense and $500 in executory costs to annual operations
D. capital lease
E. operating lease, charging $3,500 in rental expense and $400 in executory costs to annual operations
82. On January 1, Year 4, David Realty Company issued 8 percent term bonds with a face amount of $1 million due January 1, Year 14. Interest is payable semi-annually on January 1 and July 1. On the date of issue, investors were willing to accept an effective interest rate of 6 percent. Assume the bonds were issued on January 1, Year 4. for $1,148,959. Using the effective interest amortization method, David Realty Company recorded interest expense for the six months ended June 30, Year 4, in the amount of
A. $40,000
B. $80,000
C. $68,938
D. $34,469
E. none of the above
83. On January 1, Year 4, David Realty Company issued 8 percent term bonds with a face amount of $1 million due January 1, Year 14. Interest is payable semi-annually on January 1 and July 1. On the date of issue, investors were willing to accept an effective interest rate of 6 percent. Assume the bonds were issued on January 1, Year 4. for $1,148,959. The bonds were issued on January 1, Year 4, at
A. a premium
B. an amortized value
C. a discount
D. face value
E. par value
84. On February 1, Year 1, BMI issues $100,000 semi-annual 12% bonds at par plus accrued interest. The interest is payable on July 1 and January 1 of each year. What entry is necessary to record the issuance of the bonds on February 1?
A. Cash 100,000
Bonds Payable 100,000
B. Cash 101,000
Bonds Payable 101,000
C. Cash 100,000
Interest Payable 1,000
Bonds Payable 101,000
D. Cash 101,000
Bonds Payable 100,000
Interest Payable 1,000
E. none of the above
85. In Year 7, Band Manufacturing issued $100,000 semi-annual 12% bonds at par. Interest is payable on July 1 and January 1. What entry is necessary at December 31, Year 9?
A. Interest Expense 6,000
Cash 6,000
B. Interest Expense 6,000
Bonds Payable 6,000
C. Interest Expense 6,000
Interest Payable 6,000
D. Interest Expense 12,000
Interest Payable 12,000
E. Cash 6,000
Interest Payable 6,000
86. Bonds whose indentures contain a provision which gives the issuing company the option to retire portions of the bond issue before maturity if it so desires, but the provision does not require the company to do so are called _____ bonds.
A. callable
B. refunded
C. sinking fund
D. serial
E. convertible
87. Bonds are issued at greater than par value when
A. the bonds are risk free
B. the market interest rate is less than the stated interest rate on the bond
C. the market rate of interest is declining
D. the market interest rate is greater than the stated interest rate on the bond
E. the market interest rate equals the stated interest rate on the bond
88. Drum Co., Inc.
On January 1, Year 1, Drum Co., Inc., issues $100,000 par value, 10% bonds maturing in 10 years to yield 12% per year, compounded semiannually on January 1 and July 1. Use the present value tables.
Refer to the Drum Co. Inc. example. What is the bonds payable account (net of any bond discount or premium) at the end of Year 2?
A. $104,374
B. $100,000
C. $89,894
D. $85,519
E. $83,519
89. Drum Co., Inc.
On January 1, Year 1, Drum Co., Inc., issues $100,000 par value, 10% bonds maturing in 10 years to yield 12% per year, compounded semiannually on January 1 and July 1. Use the present value tables.
Refer to the Drum Co., Inc. example. How much are the initial issue proceeds?
A. $32,197
B. $88,530
C. $100,000
D. $112,462
E. $102,462
90. When the market interest rate exceeds the coupon rate; the market price of the bond
A. will be more than par
B. will be less than par
C. will be equal to par
D. is not affected
E. none of the above
