Exam 11: Reporting and Interpreting Stockholders Equity

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?

A long-term note may be secured by a document called a

Zero coupon bonds do not pay interest periodically to bondholders.The amount paid at maturity includes all accrued interest to that date.

Bonds sold at a discount will have an effective (market)interest rate that is higher than the stated interest rate.

The following table values are provided for use in solving the following independent problems (show computations): *Ordinary annuity A.Company A deposited $20,000 in a savings account on January 1,19A that will accumulate 6% interest each December 21. 1.What will be the fund balance at the end of Year 5 2.How much interest will be earned by the end of Year 5? B.Company B needs to accumulate a $50,000 fund by making five equal annual deposits.Assuming a 7% interest accumulation,how much must be deposited at the end of the year? C.Company C has new machine that has an estimated life of five years and a $5,000 residual value.Assuming an 8% interest rate,what is the present value of the estimated residual value? D.Company D owes a $50,000 debt that is now due (January 1,19A).Arrangements have been made to pay it off in five equal annual installments,starting December 31,19A (an ordinary annuity situation).

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

An annuity is a series of consecutive payments,each one increasing by a fixed dollar amount over the payment amount of the prior year.

Redeemable bonds can be paid in cash before the maturity date at the option of the issuer.

Goodgold Corporation purchased a machine which had a current cash equivalent cost of $38,971 on January 1,20A.Goodgold paid cash of $10,000 and signed an interest-bearing note for the balance,payable in six equal annual instalments on each December 31 beginning with December 31,20A.The note specified a 10% interest rate on the unpaid balance. A.Give the entry to record the purchases on January 1,20A (round to the nearest dollar) B.Give the entry to record the first installment payment on December 31,20A (round to the nearest dollar)

Companies which are investing heavily in fixed assets and acquiring other companies tend to use more debt financing.

On March 1,20A,Allen,Inc.,issued a $1,000,8%,five-year bond payable for $1,060.The bond was 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?

When a bond is issued at a premium,the amount of interest expense for an interest period is calculated by

The amortization of a bond discount results in periodic interest expense

A bond sold at a discount will pay total cash payments for interest that is more than the total interest expense recognized over the period the bond is issued.

The present value of a bond is also known as its

A corporation cannot retire bonds before their maturity date.

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

One thousand bonds with a face value of $1,000 each,are sold at 104.The entry to record the issue is

In 2012,P Co reported profit of $1,933 million,interest expense of $395 million and income taxes of $270 million.In 2011,they reported profit of $2,142 million,interest expense of $478 million and income taxes of $818 million.Calculate the times interest earned ratio for 2012 and 2011,respectively.

The balance of the bond payable account will always reflect the maturity amount (principal)of the bond.However,the book value (carrying value)may differ from the maturity amount.