Exam 11: Reporting and Interpreting Stockholders Equity

The issuance and retirement of bonds have significant impact on investing cash flows.

A $500,000 bond is retired at 97 when the carrying amount of the bond is $480,000. The entry to record the retirement would include a:

There is a reciprocal relationship between which of the following?

Assume that you borrow $10,000 at an annual interest rate of 6%. Your loan agreement calls for monthly payments of $200, which include both interest and principal. Your first payment is made one month after you received the loan. The amount of interest and principal applied to your first instalment, respectively, would be:

On January 1, 20B, Dole Corporation sold (issued) 400 of its $1,000, ten-year, 9% bonds. The bonds were dated January 1, 20B, and interest is paid semi-annually each June 30 and December 31. The bonds sold at 99. Part A: Give the entry to record the sale of the bonds on January 1, 20B Part B: Were the bonds sold at par, at a premium or at a discount and how did you arrive at your answer?

On December 31, 20A, Dive Company sold $100,000, ten-year, 8% bonds at 104.5. The bonds were dated January 1, 20A, and interest is payable each June 30 and December 31. The company uses the straight-line amortization method. The company should report the long-term liability (carrying value) for the bonds on the December 31, 20A, statement of financial position as which of the following?

Positive financial leverage occurs in which of the following situations?

Notes payable are sometimes used instead of accounts payable.

Tasker Inc. earned a gross profit of $300,000 on sales of $1,200,000 during 2013. The company also had operating expenses of $180,000. These operating expenses included interest expense of $40,000. The company is subject to an effective tax rate of 30%. What is the company's times interest earned ratio for the year?

On October 1, 20A, Britt Company issued a $5,000, 6%, bond payable. The interest is payable annually each October 1 and the bond matures in five years. The annual accounting period for the company ends December 31. Complete the following entries at the date specified under three different assumptions as to the issue price. Use straight-line amortization.

On November 1, 20A, Rossy Co. purchased $100,000, 9%, ten-year bonds of Bossy Corporation at a cost of $100,000 as a held-to-maturity investment. The bonds pay interest semi-annually each April and October 31. Give the journal entries required for the following dates: November 1, 20A December 31, 20A (End of account period) April 30, 20B

When the effective (market) interest rate is higher than the stated interest rate, a bond can be purchased at a discount.

Why are present value concepts and applications so important when companies purchase equipment financed by the seller?

On January 1, 20A, Bodner Company agreed to buy some equipment from Adams Company. Bodner signed a note, agreeing to pay Adams $500,000 for the equipment on December 31, 20C. The market rate of interest for this note was 10%. Required: A. Prepare the journal entry Bodner would record on January 1, 20A related to his purchase. B. Prepare the December 31, 20A, adjusting entry to record interest expense related to the note for th first year. C. Prepare the December 31, 20B, adjusting entry to record interest expense related to the note for th second year. D. Prepare the entry Bodner would record on December 31, 20C, the due date of the note to record interest expense for the third year and payment of the note.

If $240,000, 3%, bonds are issued on January 1, and pay interest semi-annually, the amount of interest paid on July 1 will be $3,600.

If $100,000 bonds with a carrying amount of $93,500 are redeemed at 98, a loss on redemption will be recorded.

Notes payable usually require the borrower to pay interest.

The contractual interest rate is always equal to the market rate of interest on the date that bonds are issued.

Match the definitions with the appropriate terms. Definition A. The issue price of the bond. B. A cash fund set up to retire bonds. C. The theoretically correct approach to amortizing bond discount or premium. D. Involves repayment of the bond in instalments. E. The bond contract containing legal provisions relating to the bond. F. None of the above. Term ____ 1. Equipment trust bond ____ 2. Effective-interest amortization method ____ 3. Current cash equivalent amount ____ 4. Serial bond ____ 5. Ordinary payment bond 6. Debenture ____ 7. Bond sinking fund ____ 8. Straight-line amortization method ____ 9. Indenture

Total interest cost for a bond issued at a premium equals the total of the periodic interest payments minus the premium.