Accounting 203- Chapters 9, 10, & 11
What are the types of Contributed Capital?
- Common Stock - Preferred Stock
Identify the following as either an advantage or a disadvantage of bond financing for a company: A company earns a higher return with borrowed funds than it pays in interest.
Advantage
Identify the following as either an advantage or a disadvantage of bond financing for a company: Bonds do not affect owner control.
Advantage
Identify the following as either an advantage or a disadvantage of bond financing for a company: Interest on bonds is tax-deductible.
Advantage
Is unregistered, interest is paid to whoever possesses them.
Bearer bond
Date of Declaration
Board votes to accept new liability, decreasing stockholders' equity.
Evidence of the company's debt.
Bond certificate
A bond that has becomes due at various periods of time is a... A. Term bond B. Callable bond C. Serial bond D. Secured bond
C. Serial bond
Issuer may retire it at a stated dollar amount before maturity.
Callable bond
Equals par value minus any unamortized discount or plus any unamortized premium.
Carrying value of bond
What kind of account is a Treasury Stock account?
Contra equity account
Current Liability, Long-term Liability, or Not a Liability?: Bonds Payable (due in 9 months)
Current Liability
Current Liability, Long-term Liability, or Not a Liability?: FICA- Social Security Taxes Payable.
Current Liability
Current Liability, Long-term Liability, or Not a Liability?: FUTA taxes payable.
Current Liability
Current Liability, Long-term Liability, or Not a Liability?: Notes payable (due in 120 days).
Current Liability
Current Liability, Long-term Liability, or Not a Liability?: Notes payable (due in 6 to 11 months).
Current Liability
Current Liability, Long-term Liability, or Not a Liability?: Pension liability (to be fully paid to retired employees in next 11 months).
Current Liability
Current Liability, Long-term Liability, or Not a Liability?: Salaries Payable.
Current Liability
Current Liability, Long-term Liability, or Not a Liability?: Unearned revenues (to be earned over next 3 months).
Current Liability
What is the normal balance of treasury stock?
Debit
Would stockholders' equity increase, decrease, or have no effect as a result of this transaction: Cash dividends are paid to shareholders.
Decrease
Identify the following as either an advantage or a disadvantage of bond financing for a company: A company earns a lower return with borrowed funds than it pays in interest.
Disadvantage
Identify the following as either an advantage or a disadvantage of bond financing for a company: Bonds require payment of par value at maturity.
Disadvantage
Identify the following as either an advantage or a disadvantage of bond financing for a company: Bonds require payment of periodic interest.
Disadvantage
Huprey Co. is the defendant in the following legal claims. For each of the following separate claims, indicate whether Huprey should (a) record a liability, (b) disclose in notes, or (c) have no disclosure. Huprey faces the possibility of a loss on a pending lawsuit. It is reasonably possible that Huprey could be required to pay damages. However, it cannot estimate amounts owed.
Disclose in notes
Allegiant issues 9%, 20-year bonds with a par value of $2,000,000 and semiannual interest payments. In each separate situation, determine whether the bond is issued at par value, at a discount, or at a premium. Market rate for the bond is 10%
Discount
Occurs when the contract rate is less than the market rate.
Discount on bonds payable
True/False: International Standards and GAAP standards differ on how to record contingent liabilities. International Standards require companies to report all contingencies on the balance sheet.
False International standards do not list contingencies on the balance sheet, instead it identifies a provisional item at the bottom and the amount is discounted at present value of money.
True/False: A lawsuit that experts believe is possible to have a liability will need to be identified on the balance sheet only if the amount of the liability can be estimated.
False Lawsuits or liabilities that are possible are merely disclosed in the financial notes.
Earnings per share =
Income available to common stockholders / Weighted average common shares outstanding
Would stockholders' equity increase, decrease, or have no effect as a result of this transaction: No par common stock is issued.
Increase
Would stockholders' equity increase, decrease, or have no effect as a result of this transaction: Treasury stock is sold above cost for cash.
Increase
Date of Issuance
Liability created on date of declaration is satisfied.
Current Liability, Long-term Liability, or Not a Liability?: Bonds payable (due in 2 years).
Long-term Liability
Price-earnings ratio =
Market value (price) per share / Earnings per share
Income available to common stockholders =
Net income - Preferred dividends
Huprey Co. is the defendant in the following legal claims. For each of the following separate claims, indicate whether Huprey should (a) record a liability, (b) disclose in notes, or (c) have no disclosure. Huprey is being sued for damages of $2,000,000. It is very unlikely (remote) that Huprey will lose case.
No Disclosure
Would stockholders' equity increase, decrease, or have no effect as a result of this transaction: A stock split of 5-for-1 occurs.
No effect
Is their a journal entry for 'date of record'?
No entry
Current Liability, Long-term Liability, or Not a Liability?: Machinery (expected life of 4 years).
Not a Liability
Allegiant issues 9%, 20-year bonds with a par value of $2,000,000 and semiannual interest payments. In each separate situation, determine whether the bond is issued at par value, at a discount, or at a premium. Market rate for bond is 9%
Par value
Allegiant issues 9%, 20-year bonds with a par value of $2,000,000 and semiannual interest payments. In each separate situation, determine whether the bond is issued at par value, at a discount, or at a premium.: Market rate for bond is 8%
Premium
Amount by which the bond price exceeds par value.
Premium on bond
What is the formula to calculate interest?
Principle x Interest Rate x Time
Huprey Co. is the defendant in the following legal claims. For each of the following separate claims, indicate whether Huprey should (a) record a liability, (b) disclose in notes, or (c) have no disclosure. It is probable that Huprey will lose a pending lawsuit. Huprey can reasonably estimate the amount of damages to be paid if it loses the lawsuit.
Record a liability
Once the balance in Paid-in Capital-Treasury has been exhausted, any additional debits are absorbed by __________________________________________.
Retained Earnings
Pledges specific assets of the issuer as collateral.
Secured bond
What is the main difference between common stock and preferred stock?
Shareholders of common stock have voting rights, whereas, shareholders of preferred stock do not.
Maintains a separate asset account from which bondholders are paid at maturity.
Sinking fund bond
Date of Record
Stockholders who own the shares on this date will receive dividend.
Authorized Shares
The maximum number of shares a corporation may issue as indicated in the corporate charter.
Outstanding Shares
The number of shares issued less the number of shares held as treasury stock.
Issued Shares
The number of shares sold or distributed to stockholders
The Debt to Equity Ratio is:
Total Liabilities / Total Equity
True/False: the stated interest rate of a bond is important in determining the issuance price of a bond.
True
Is their a journal entry for 'date of issuance'?
Yes; Common Dividend Payable - Debit Cash - Credit
Is their a journal entry for 'date of declaration'?
Yes; Retained Earnings - Debit Common Dividend Payable - Credit
A treasury stock account is always debited and credited for the ____________________________________.
cost per share (not the par value)
Paid-in capital-treasury can be debited or credited, but can never have an ending _______________ balance.
debit
