Exam 11: Reporting and Interpreting Stockholders Equity

If a bond has a face value of $5,000 and a contractual interest rate of 6 percent, then the interest paid semi-annually will be $150.

On November 1, 20A, Duval Company sold (issued) 300, $1,000, ten-year, 7% bonds at 97. The bonds were dated November 1, 20A, and interest is payable each November 1 and May 1. What would be the amount of discount amortization at each semi-annual interest date (assume straight-line amortization)?

The present value of an annuity is determined only from the interest (discount) rate and the periodic payment amount.

A $20,000, 5%, 9-month note payable requires an interest payment of $750, if interest is due at maturity.

Pleasant Company has established a pension plan for its employees that operates as follows: Each year, Pleasant Company places a fixed dollar amount in a pension fund for each employee. The funds are then invested. Upon retirement, each employee is entitled to the cash value of the funds that have been invested in his/her name. This arrangement is an example of which of the following?

Under the effective-interest method, the interest paid each year is the same but the interest expense recorded is different.

Present value can be defined as which of the following?

The future value of an annuity is always more than the sum of its payments whereas the present value of an annuity is always less than the sum of its payments.

Marie is considering several possible investment alternatives. Required: 1. Calculate the present value of each option assuming Marie can earn 8% on any of the investment funds. 2. Which option results in the greatest financial benefit to Marie?

The difference between the carrying amount and the amount paid to retire the bonds is reported as a gain or loss, depending on the circumstances.

As a held-to-maturity investment, Jones Company purchased a $1,000, 7% bond of Company Y on January 1, 20A. The interest is paid each December 31 and the bonds mature in five years from the acquisition date. Give the journal entry to record the acquisition of the bond under each of the following three assumptions. The bond sold at par The bond sold at 103: The bond sold at 97:

Bonds are often traded on an organized exchange.

A high debt to equity ratio indicates reliance on creditor financing thereby increasing the risk that a company will not be able to meet its obligations.

On March 1, 20A, Allen, Inc., issued a $1,000, 8%, five-year bond payable for $1,060. The bond wa dated on March 1, 20A, and interest is payable each February 28 and August 31. You are to complete the following entries: (round to the nearest dollar.) (d) Was the bond issued at par, at a premium, or at a discount? (e) What is the carrying value of book value of the bond on December 31, 20A? (f) Where in the financial statements does the carrying value of the bond appear (be specific)? (g) On what date does the bond issue mature?

A corporation issues $100,000, 10%, 5-year bonds on January 1, 2014 for $108,111, at a price to yield 8%. Interest is paid semi-annually on January 1 and July 1. The amount of premium amortized on July 1, 2014 is

If a corporation issued bonds at an amount less than face value, it indicates that the corporation has a weak credit rating.

Kristen deposits $5,000 in the bank today. She will be earning 6% interest annually on her deposit. How much money will she have in the bank at the end of 5 years? (Round to the nearest dollar).

Austin Corporation sold its $1,000,000, 7%, ten-year bonds to the public on January 1, 20A. The bonds pay interest annually, beginning on December 31, 20A. Austin received $1,153,420 in cash at the issuance of the bonds. The market rate of interest when the bonds were sold was 5%. (a) Compute the amount of the premium that Austin Corporation should amortize on December 31, 20A, assuming the "effective-interest" method is used. $ (b) Compute the amount of the premium that Austin Corporation should amortize on December 31, 20A, assuming the "straight-line" method is used. $________ (c) Which method above is theoretically the better to use for amortizing a bond premium?

On November 1, 20A, Katz Company purchased twenty $1,000, 9% bonds (interest is payable each April 30, and October 31) at 97. What is the amount that should be recorded in the long-term investment account on November 1, 20A?

The calculation of interest to be paid each interest period in connection with a bond payable is not influenced by any premium or discount upon issue.