Exam 11: Reporting and Interpreting Stockholders Equity

A reciprocal relationship exists between the "future value of $1" and the "present value of $1."

On January 1, 2013, Carter Ltd. issued a 15-year, $600,000 instalment note payable, with annual fixed principal payments of $40,000, plus 5% interest. The cash payment for the first year is:

Meade Company has accumulated cash in a fund to use for future expansion. The following accumulation schedule for the fund was prepared: Required: Refer to the schedule above and respond to the following questions by entering the answers in the blanks to right.

Each payment made on a long-term note payable usually consists of both interest and principal.

Match the way a bond will sell with the situations given. Bond will sell for A. Par B. A discount C. A premium D. None of the above Situation ____ 1. Bond sells at 108. ____ 2. Bond sells at 93. ____ 3. Bond sells at 100. ____ 4. The effective rate is greater than the stated rate. ____ 5. The stated rate equals the effective rate. ____ 6. The stated rate exceeds the effective rate.

The carrying value (book value) of a bond payable is equal to the maturity amount of the bond plus any unamortized discount or premium.

Bonds usually are issued to obtain cash for what purpose?

A high growth rate company may have a low times interest earned ratio because it has used debt to finance property, plant and equipment assets that are not yet generating a level of profits expected to materialize in the future.

Consider the following statement: "Issuing bonds at a discount is bad for the issuing corporation." Required: Discuss the statement above and comment on its validity.

A long-term note payable is often secured by a mortgage.

If a bond payable is sold (issued) at a premium, the amount of the carrying value (the long-term liability) reported on the subsequent statements of financial position does which of the following?

On January 1, 20A, A-Ace Corp. issued $3,000,000 par value 12%, 10 year bonds which pay interest each December 31. If the market rate of interest was 14%, what should the issue price of the bonds be? (The present value factor for $1 in 10 periods at 12% is .3220 and at 14% is .2697. The present value of an annuity of $1 factor for 10 periods at 12% is 5.6502 and at 14% is 5.2161.)

If there is a loss on bonds redeemed early, it is

In 2014, P Co reported net earnings of $1,933 million, interest expense of $395 million and income taxes of $270 million. In 2013, they reported net earnings of $2,142 million, interest expense of $478 million and income taxes of $818 million. Calculate the times interest earned ratio for 2014 and 2013, respectively.

Watson Company purchased a truck that cost $17,000. The company signed a $17,000 note payable that specified four equal annual payments (at each year-end), each of which includes a payment on the principal and interest on the unpaid balance at 10% per annum.

Bush Company authorized $150,000 of 5-year bonds dated January 1, 20A. The stated rate of interest was 14%, payable each June 30 and December 31. The bonds were issued on January 1, 20A, when the market interest rate was 12%. Assume effective-interest amortization. (The present value factor for $1 at 6% for 10 periods is 0.5584, for $1 at 7% for 10 periods is 0.5083, for $1 at 14% for 5 periods is 0.5194, and for $1 at 12% for five periods is 0.5674. The present value of an annuity of $1 for 10 periods at 6% is 7.3601, for 10 periods at 7% is 7.0236, for 5 periods at 6% is 4.2124, and for 5 periods at 7% is 4.1002.) Round to the nearest dollar. (a) What would be the amount of premium amortization for June 30, 20A? (b) What would be the amount of premium amortization for December 31, 20A? (c) What would be the amount of the interest payment on June 30, 20A? (d) What would be the amount of the interest payment on December 31, 20A?