Reading 38: Long-Term Liabilities and Leases - LOS a ～ Q23 class, following, black, white

mayanfang1

Q23. An analyst is considering a bond with the following characteristics:

• Face value = $10.0 million

• Annual coupon = 5.6%

• Market yield = 6.5%

• 5 year maturity

At issuance the bond will:

A)   provide cash flow from investing of approximately $9.626 million.

B)   increase total liabilities by $10.0 million.

C)   increase total assets by $9.626 million.

Q24. Using the effective interest method, the interest expense in year 3 and the total interest paid over the bond life are approximately:

          Year 3 Interest Expense              Total Interest

 

A)      $634,506                                    $3.17 million

B)      $560,000                                    $2.80 million

C)      $560,000                                    $3.17 million

Q25. A company sells a long-term, zero-coupon bond. The company’s cash flow from operations in subsequent years, compared to what it would have been if the company had issued debt at par for the same proceeds, will be:

A)   overstated.

B)   understated.

C)   properly stated.

Q26. Nomad Company issued $1,000,000 face value 2-year zero coupon bonds on December 31, 20X2 to yield 8% interest. Bond proceeds were $857,339. In 20X3 Nomad recorded interest expense of $68,587. In 20X4 Nomad recorded interest expense of $74,074 and paid out $1,000,000 to redeem the bonds. Based on these transactions only, Nomad’s Statement of Cash Flows would show cash flow from operations (CFO) of:

A)   -$68,587 in 20X3 and -$74,074 in 20X4.

B)   zero in all years.

C)   -$142,661 in 20X4.

seraphiris0116

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