Exam 11: Reporting and Interpreting Stockholders Equity

Typically,an indenture is a separate cash fund built up over time to meet the large cash demand encountered at the maturity date of a bond issue.

Financial leverage is positive when a company borrows funds at a low interest rate and invests those funds at a higher interest rate.That is,positive financial leverage uses borrowed funds to increase the return to shareholders.

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)?

Wheel Company purchased an asset that cost $70,000 on January 1,20A.Arrangements were made with the supplier to pay $10,000 cash on January 1,20A,and the balance was to be paid over a three-year period,with equal annual payments of $24,553 to be made at the end of 20A,20B,and 20C.Each payment will include principal plus interest on the unpaid balance at 11% per year. A.Complete the following table. * Round to reduce principal to zero. B.Give the entry for the payment on December 31,20B C.On the debt payment schedule,what is the trend of amounts for interest expense and principal reduction over time? Explain your response.

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?

Safeway Company issued $100,000 of fixed interest rate bonds payable at 98.At year-end,the bonds were selling in the bond market at 99.What entry would Safeway make at year-end to record the change in selling price?

On June 30,20A,Reagan Corporation sold (issued)a $1,000,ten-year,8% bonds payable (interest payable each June 30 and December 31). For the three assumptions below,complete the following schedule assuming the accounting year ends December 31,and straight-line depreciation is used:

The use of financial leverage by a company does not result in increased risk for its investors.

If a bond is sold at a discount,the bonds payable account is debited to amortize the discount as interest revenue is recorded.

You have been asked to compute the cash equivalent price of a machine assuming the cost (including principal and interest)is to be paid in two equal payments after the acquisition date.What is the interest concept that best describes this application?

Some bonds are issued with a variable rate of interest instead of a fixed rate of interest.

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

Kristen's grandmother promises to give her $1,000 at the end of five years.How much is the money worth today,assuming Kristen could invest the money and earn a 6% annual rate of return? (Round to the nearest dollar).

A $500,000 bond was retired at 97 when the carrying amount of the bond was $495,000.The entry to record the retirement would include a

If bonds have been issued at a discount,then over the life of the bonds the

In 2012,The W D Co.had total liabilities of $22,704 million and total assets of $43,679 million.In 2011,they had total liabilities of $21,990 million and total assets of $41,378 million.Calculate their debt to equity ratio for 2012 and 2011,respectively.

Deany Company issued $100,000 bonds.The stated rate of interest was 8% and the market rate 9%.Which of the following statements is true?

In 2012,C Co.reported a times interest earned ratio of 12.33 times while P Co.reported a ratio of 11.07 times.Which of the following statements is false?

A characteristic of a callable bond is the payment of the principal by the issuing corporation in instalments on several specified dates.

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