Exam 11: Reporting and Interpreting Stockholders Equity

If bonds sell at a premium, the interest expense recognized each year will be greater than the contractual rate of interest.

On July 1, 20A, GAAP Corporation sold (issued) $100,000 of its ten-year, 6% bonds payable at 98. The bonds were dated July 1, 20A, and interest is paid each June 30, and December 31. (a) Give the entry to record the sale of the bonds (b) Give the entry to record the first interest payment. Assume straight-line amortization

For the future value of a single amount, the compounding period may only be once a year.

The amortization of bond premium by the issuer will do which of the following?

If the market rate of interest at the date of a bond issue is greater than the stated interest rate, the bond will be issued at a premium.

When the effective-interest amortization method is used, the related interest expense for the period is determined by multiplying the stated interest rate by the book value of the bond at the beginning of the current period.

Interest expense on a note payable is only recorded at maturity.

On December 31, 20A, Bennett recorded an adjusting entry to account for interest that had accrued on the note. What is the approximate amount of interest expense that would have accrued at December 31, 20A?

On July 1, 20B, WildWorld Inc. sold (issued) 300, $1,000, ten-year, 7% bonds at 101. The bonds were dated July 1, 20B, and semi-annual interest will be paid each December 31 and June 30. WildWorld uses straight-line amortization. What is the bond liability that would be reported on the statement of financial position at December 31, 20B?

If the market rate of interest is 10%, a rational person would just as soon receive $1,100 three years from now as what amount today (round to the nearest dollar)?

With an interest-bearing note, the amount of cash received upon issue of the note generally exceeds the note's face value.

Goodgold Corporation purchased a machine which had a current cash equivalent cost of $38,971 on January 1, 20A. Goodgold paid cash of $10,000 and signed an interest-bearing note for the balance, payable in six equal annual instalments on each December 31 beginning with December 31, 20A. The note specified a 10% interest rate on the unpaid balance. A. Give the entry to record the purchases on January 1, 20A (round to the nearest dollar) B. Give the entry to record the first installment payment on December 31, 20A (round to the nearest dollar)

On January 1, 20A, Goldstein Company purchased a machine. The seller agreed that a total of $9,000 would be paid over a three-year period--$3,000 per year at the end of 20A, 20B, and 20C. At the time the machine was purchased, the market rate of interest was 10%. What amount should be debited to the asset account, Machinery, on the date of purchase (round to the nearest dollar)?

The following information was taken from the income statement of The W D Company for the years 2010 through 2012 (in millions): (1) Calculate the times interest earned ratio for 2010 through 2012. (2) Comment on the ratios' sufficiency.

Interest expense on fixed principal long-term notes does not change each payment.

If bonds are issued at a premium, the carrying amount of the bonds will be greater than the face amount of the bonds for all periods prior to the bond maturity date.

On the maturity date of bonds payable after interest has been paid, the issuing company will do which of the following?

If the market rate of interest is greater than the contractual rate of interest, bonds will sell at a discount.

The times interest earned ratio is calculated by dividing net earnings by interest expense.

In 2014, The W D Co. had total liabilities of $22,704 million and total assets of $43,679 million. In 2013, they had total liabilities of $21,990 million and total assets of $41,378 million. Calculate their debt to equity ratio for 2014 and 2013, respectively.