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