ACC exam 4
Which of the following is true for a corporation that issues 1,000 shares of $2 par common stock at $5 per share?
Total stockholders' equity will increase by $5,000.
bond premium
bonds issued at a premium will also record the amount paid above face value in a premium on bonds payable account which has a normal credit balance
what happens when you sell bonds for less than the par amount
selling price will fall below face value and you sell it at a discount
A bond issuing at 101.25 means that the bond
sold for $1,012.50.
what kind of accounts are treasury stock and additional paid-in capital
stockholders' equity
Future Value (FV)
the amount to which a cash flow or series of cash flows will grow over a given period of time when compounded at a given interest rate
Present Value (PV)
the current value of future cash flows discounted at the appropriate discount rate
date of record
the date a stockholder must own shares of stock to receive a dividend
authorized shares
the maximum number of shares the business may issue in each class of stock
outstanding shares
the number of issued shares actually in the hands of stockholders
You just won the lottery and have elected to receive 10 annual payments instead of the lump sum of $74,818.59. Calculate the amount of your annual payment assuming a 6% interest rate.
$10,165.44
PV for Annuity calculation
future value of annuity (sometimes called rent) x PV of an annuity factor
Cash flows from acquiring and disposing of long-term assets are classified as
investing activities
When using the indirect method to determine operating cash flows, how is the issuance of stock to retire a long-term debt shown on a statement of cash flows?
noncash investing or financing activity
long term debt
obligations that extend beyond one year
Cash flows from acquiring and selling products are classified as
operating activities
treasury shares (stock)
previously issued stock that is repurchased by the issuing corporation
Manatee Manufacturing sells a piece of equipment to make room for new machinery. Manatee will receive the sales price of $50,000 at the end of 4 years. Assuming interest at a rate of 6% per year, the Present Value of this future cash flow is how much?
$39,604.50
Eric is considering buying a car. He can either purchase the car outright or make 5 annual payments of $10,000 at the end of each year. If the interest rate is 7%, how much is the outright purchase price?
$41,002.00
Tom liquidates an investment, and his proceeds will be received in 8 annual payments of $10,000 each with interest computed at 7%. What is the Present Value of this Annuity?
$59,713.00
bond issuing price =
% x face value
If the stated interest rate is 12% per year, but it is compounded semiannually, then the adjusted rate used for present or future value calculations will be
6% per 6-month period.
selling price =
Face value x quote (a %)
The Kaplan Group sold $200,000 of 10-year bonds for $190,000. The face rate on the bonds was 8% and interest is paid annually on December 31. What entry would be made on December 31 when the interest is paid? (Numbers are omitted.)
Interest Expense Discount on Bonds Payable Cash
interest rate of a dollar amount based on the PV
PV= future value x PV of 1 factor (from the table)
Suppose a corporation issues 5,000 shares of $1 par common stock for $30 per share. In addition to the increase in cash, what effect does this transaction have on the accounting equation?
Paid-in capital in excess of par increases $145,000.
par value
\for stock, it is an arbitrary monetary amount printed on each share of stock that establishes a minimum price for the stock when issued, but does not determine its market value. For debt, par value is the amount of money the borrower agrees to repay at maturity.
Cash flows from borrowing and paying off a 90-day bank loan are classified as
financing activities
This company was incorporated as a new business on January 1, 2019. The company is authorized to issue 50,000 shares of $5 par common stock and 10,000 shares of 6%, $10 par, cumulative, participating preferred stock. On January 1, 2019, the company issued 8,000 shares of the common stock for $15 per share and 2,000 share of the preferred stock for $30 per share. Net income for the year ended December 31, 2019 was $375,000.Refer to Lanier Tech. What is the amount of the company's total capital stock at December 31, 2019?
$180,000
A corporation issued $150,000 of 10-year bonds at the stated rate of 8%, with interest payable semiannually. How much cash will the bond investors receive at the end of the first interest period?
$6,000
Mark is planning on making an investment in a new computer system. He wants to know how much he must invest to have $9,000 in 4 years if the interest rate is 5% per year?
$7,404.30
A graphics design company issued bonds in the amount of $1,000,000 with a stated interest rate of 8%. If the interest is paid semiannually and the bonds are due in 10 years, what would be the total amount of interest paid over the life of the bonds?
$800,000
Features of Common Stock
-voting rights -proxy voting -classes of stock -share proportionally in declared dividends -share proportionally in remaining assets during liquidation -preemptive right- first shot at new stock issue to maintain proportional ownership if desired
Total stockholders' equity includes $50,000 of common stock with a stated value of $0.50, and 5,000 shares of treasury stock with a total cost of $25,000. How many total shares are outstanding?
95,000
