Exam 11: Reporting and Interpreting Stockholders Equity

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.

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.)

The cash collected when a bond is sold will always equal the maturity value of the bond.

Long-term debt carries additional risk because interest and principal payments are not discretionary.

Typical non-current liabilities include lease obligations,asset retirement obligations,accrued retirement benefits liability,and deferred income taxes.

A bond liability usually should be reclassified as a current liability when the maturity date of a bond issue is within one year of the current statement of financial position date,or within the operating cycle (whichever is longer).

Millwood Company prepared a bond issue dated January 1,20A.On January 1,20A,the company sold $100,000 of its par value bonds at 103.The bonds mature in thirty years and have a stated rate of interest of 8% per year.Interest is payable annually on December 31.Straight-line amortization is used (round to the nearest dollar). (a)Give the entry to record the sale of bonds on January 1,20A: (b)Give the entry to record interest expense at December 31,20A (end of the annual accounting period) (c)Show how the bonds would be reported on the balance sheet of Millwood Company dated December 31,20C

There is a reciprocal relationship between which of the following?

The times interest earned ratio uses accrual based figures from the income statement for its calculation.

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.

The future value of $1 is always more than $1,whereas the present value of $1 is always less than $1.

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:

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?

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

When the market rate of interest is in excess of the stated rate of interest,a bond will be sold at a premium.

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 30 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

Calculation of the amount of the equal periodic payments that would be required at the end of each year to accumulate a $20,000 fund at the end of the tenth year is most readily determined by reference to a table that shows which of the following?

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

Bonds are debt instruments issued by corporations and government units in order to raise large amounts of money.

The times interest earned ratio measures the ability of a company to meet its interest obligations with resources from its profit-making activities.