For Which of the Following Transactions Would the Use of the Present

question 84

Multiple Choice

For which of the following transactions would the use of the present value of an ordinary annuity concept be appropriate in calculating the present value of the asset obtained or the liability owed at the date of incurrence?

• A) A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement.
• B) A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.
• C) A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 7%.
• D) A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 9%.

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Definitions:

Discount on Bonds Payable

The difference between the face value and the selling price when bonds are sold for less than their face value.

Long-Term Liabilities

Financial obligations of a business that are due more than one year in the future, such as bonds payable, long-term lease obligations, and pension liabilities.

Times Interest Earned Ratio

A financial metric measuring a company's ability to meet its debt obligations by comparing its income before interest and taxes to its interest expenses.

Income Statement

A financial report that shows a company's revenue, expenses, and profits over a specific period.