ACC 330 Final (learn-smart)
The selling price of Burrows, Inc.'s $50,000, 5-year, zero-coupon bonds given the market rate was 9% equals
$32,495
On January 1, XYZ Corporation issued $200,000 of 8%, 5-year bonds when the market rate of interest was 6%. The bonds were issued for $216,849 and interest will be paid annually on December 31. Using straight-line amortization, the 1st annual interest payment will be recorded with a _________ to Premium on bonds payable.
($200,000 * 0.08) / 5 $3,370 debit
Purchase of a new delivery truck
Investing activities
Payment date
Dividends payable is decreased
The Journal entry to record the payment of a previously declared dividend includes a
Debit to Dividends payable Credit to cash
ABC Company issues a bond with a face value of $100,000 on January 1 for $100,000. ABC prepares financial statements only at December 31, so no adjusting entries are made during the year to accrue interest. If the bond carries a stated interest rate of 6% payable in cash on December 31 of each year, the journal entry to record the first bond interest payment includes a ___________ of $6,000
Debit to Interest payable Credit to Cash
The journal entry to record the declaration of a dividend that is to be paid at a later date includes a
Debit to Retained Earnings Credit to Dividends payable
Debt covenants are
Designed to protect creditor Limitations placed on the issuing company
Convertible bonds
Bonds that can be exchanged for shares of stock in the issuing company
Secured bonds
Bonds that pledge a specific asset in the event the company is unable to make payments
Callable bonds
The issuing company can pay off the bonds at the option of the issuer
When a company repurchases its own securities, the stock is recorded in which account?
Treasury stock
Debentures
Unsecured bonds
The _______ is the interest rate on the date the bonds are issued and used to determine the amount of interest expense.
Yield, effective rate of interest, market rate of interest
The discount on bonds payable becomes
additional interest expense over the life of the bonds
If the market interest rates increase during the life of a bond, the issuers will _______ on this bond
not change the amount of interest paid
The coupon rate _______ and market rate ______ over the life of a bond.
remains the same, changes
Which of the following would most likely appear on a Statement of cash flows? -Interest paid -Interest expense -Interest payable
Interest paid
Which of the following would most likely appear on a Balance sheet? -Interest paid -Interest expense -Interest payable
Interest payable
If ABC Company issues its $5,000,000, 8% bonds payable at a premium and records Bonds premium, then the
Market rate of interest must be less than the stated rate of interest. Debit to cash is greater than the credit to Bonds payable
Ima Rich purchased 100 shares of Stockits, Inc.'s $1 par value common stock from Stockits for $5 per share. Which statements are true regarding the effect of this transaction on Stockits' financial statements?
Stockholders' equity on the balance sheet increases. The financing activities section of the statement of cash flows increases
The two methods of amortizing bond discounts or premiums are called the _________ and the ________ methods
Straight-line Effective-interest
The purpose of the statement of stockholders' equity is to
report the changes and the sources of the changes of shareholder equity accounts
At maturity, a bond issued at a premium will have ______ bonds payable balance compared to the maturity value had the bond had sold at a discount or par.
the same
Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The journal entry to record this transaction includes a
$10,000 debit to treasury stock $10,000 credit to cash
Payments of accounts payable
Operating activities
A corporate charter
Specifies the rights and characteristics of the stock. Is required before stock is issued. Specifies the number of shares authorized.
The effect of amortizing bonds sold at a _______ the carrying value of Bonds payable to the face or par value by the time the bonds mature
discount is to increase, premium is to decrease
Under the effective-interest amortization method
interest expense = the bonds book value * the market rate of interest
Zero-coupon bonds have
no periodic interest payments
If the market interest rates increase during the life of a bond, the issuer will _______ on this bond.
not change the amount of interest paid
If a bond pays interest semi-annually, when determining the price of a bond, the present value of interest payments will equal the present value of an annuity x _______.
principal * annual stated rate * 1/2
The price of a bond equals the present value of the
principal amount + the present value of the periodic interest payments
Barry Rich purchased a $1,000, 10% bond which was originally issued at par value by X Company. Barry sold the bond to Ida Bott for $1,010 years later. As a result of this exchange, X Company will
use the same interest rate that existed when the bond was first issued by X Company
Treasury stock is reported in the
Stockholders' equity section of the balance sheet
Just in Thyme, Inc. has the following December 31 equity balances: Common stock of $20,000; additional paid in capital of $30,000; and retained earnings of $50,000. If Just in Thyme, Inc repurchases $10,000 of its stock, the total stockholders' equity balance would equal
$20,000 + $30,000 + $50,000 - $10,000 = $90,000
On January 1, Bondz, Inc. issued $100,000, 8%, 5-year bonds for $96,107.60 given a market rate of 9% and annual interest payments. Assuming Bondz records its bond payable net of premiums or discounts and it uses the effective interest method, the entry to record the 2nd interest payment on December 31 includes a(n) ________.
$8,708.16 debit to Interest expense $708.16 credit to Bonds payable $8,000 credit to Cash
Given no monthly adjustments were made during the year, the December 31 year-end adjusting entry to record the interest on a $100,000, 12% bond that pays interest annually on November 1 and was sold at par value will include
($100,000 * 0.12) * 2/12 = $2,000 a $2,000 credit to interest payable a $2,000 debit to interest expense
Gilmore issued a $100,000 face value of 6% bonds for $95,000. The journal entry to record the issuance of the bonds would include which of the following entries?
Debit Cash for $95,000 Debit discount on bonds payable for $5,000 Credit Bonds payable for $100,000
The bond issuer prepares a ________, which is a regulatory document that describes the company, the bonds, and how the proceeds of the bonds will be issued
Prospectus
The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to _______ and a credit to _______.
Cash; Bonds payable
At the date of issue, the stated rate of interest on the bond is always equal to the market rate of interest on the bond
False
Date of record
Stock records are finalized to determine which stockholders are to receive payment
Declaration date
The board of directors official approves a dividend
If a company repurchases its shares of stock, the shares are reported as
a contra equity account - treasury stock
ABC Corporation received $9,500 for its 5-year, 10% bonds with a total face value of $10,000. The bonds pay interest annually on December 31. Using the straight-line method and assuming no adjusting entries during the period have been recorded, the journal entry to record the first bond interest payment would include a
$1,000 + ($500 / 5) = $1,100 Debit to interest expense of $1,100 Credit to cash of $1,000 Credit to discount on Bonds payable of $100
ABC Corporation issued $100,000 of 10%, 5-year bonds on January 1, 2015, for $92,280. The market interest rate when the bonds were issued was 12%. Interest is paid semi-annually on January 1 and July 1. Using the effective-interest amortization method, the entry to record the interest payment on July 1, 2015 will include a
($92,280 * 0.12) * 6/12 = $5,536.80 $5,536.80 debit to interest expense $5,000 credit to cash $536.80 credit to Discount on bonds payable
If ABC Company issues 100 of its $1,000 bonds at a price of $1,100 each for a total of $110,000, the journal entry to record the transaction includes a
Debit to cash $110,000 Credit to Bonds payable of $100,000 Credit to premium on bonds payable of $10,000
ABC corporation issued bonds that pay interest each March 1 and September 1. The corporation's December 31 adjusting entry will include a
Debit to interest expense Credit to Interest payable
Bonds, Inc. issued $10,000 7%, 5-year bonds that pay interest annually for $10,420 given a 6% market rate of interest. Rounding to the nearest $1, the entry to record the first interest payment, using the straight-line method includes a
Debit to interest expense of $616 Debit to premium on bonds payable of $84 Credit to cash of $700
Payment of dividends to stockholders
Financing activities
Which of the following would most likely appear on a income statement? -Interest paid -Interest expense -Interest payable
Interest expense
When recording the payment of interest using the effective-interest method, the entry will include a _______ to Discound on bonds payable in the amount of the difference between the cash payment based on the _________ interest rate and interest expense based on the ________ interest rate
credit; stated; market