Accounting Exam #2

unsecured bonds

(a.k.a debenture bonds) nothing behind the bonds

determining a market price of a bond:

1) amounts to be received 2) length of time until amounts are received 3) market rate of interest

Only record bonds when:

1) issuing (sells) bonds 2) buys back the bond

long term notes payable

1) secured by a mortgage that pledges title to specific assets as a security for a loan 2) installments payments over term of loan 3) each payment has interest on unpaid

Legal Document that summarizes rights & privileges of bond holders

Bond indenture

to redeem bonds @ maturity

Bonds Payable Cash

convertible bonds

Bonds that can be converted into common stock at the bondholder's option

Gains =

CR

If face value more than 100:

CR. Premium on Bonds Payable

Entry to record bonds:

Cash Bonds Payable

Entry to record discount on bonds

Cash Discount on Bonds Payable Bonds Payable

Losses =

DR

if face value less than 100:

DR. Discount on Bond Payable

contractual interest rate = rate investors demand for loaning funds

FALSE

market price of bond = to maturity date

FALSE

entry to record bonds @ face value w/ interest

Interest Expense Interest Payable

The entry to record an installment payment on a long-term note payable is

Mortgage Payable Interest Expense Cash

Frye company sells 1,000 shares of treasury stock for 42,000. The shares had been previously acquired for 35,000. The 7,000 received over cost should be credited to:

a paid in capital account

Discount on Bonds

a.k.a - interest

face value

amount of principal the issuing company must pay @ maturity date

principal reduction

an interest decreases, principal of reduction increases

secured bonds

asset backing a stock

the return on common stockholders' equity is computed by dividing net income available to common stockholders by:

average common stockholders' equity

straight -line amortization

bond discount / # of interest payable = bond discount amortization

Amortizing bond premium

bond premium/# of interest periods=bond premium amortization

redeem bonds before maturity

bonds payable premium on bonds payable loss on bond redemption cash

callable bonds

bonds that the issuing company can redeem (buy back) at a stated dollar amount prior to maturity

On balance sheet, mortgage note payable is reported as:

both current & long term

entry to record bonds @ face value

cash bonds payable

Bonds that may be exchanged for common stock at the option of the bondholders are called

convertible bonds

Bonds issued against general credit of borrower

debenture bonds

which of the following is not a true statement regarding short-term debt investments?

debt investment are recorded at the price paid less brokerage fees

which of the following is NOT an advantage of issuing bonds instead of common stock

earnings per share on common stock may be lower

earnings per share is based on the

ending common shares outstanding

mortage bonds & sinking funds bonds

example of secured bonds

corporations invest in other companies for all of the following reasons except to

increase trading of the other companies' stock

Bonds

interest bearing notes payable

A prior period adjustment

is a correction of an error, made directly to retained earnings

interest rate investors demand for loaning funds in the

market interest rate

long term liabilities

obligations expected to be paid off after 1 year

a corporation recognizes a gain or loss

only when bonds are redeemed before maturity

Market interest rate

rate investors demand for loaning funds

bonds that have specific assets of the issuer pledged as collateral are

secured bonds

both stock dividends and stock splits affect total:

shares outstanding

carrying value

the face value of the bonds less any remaining bond discount or plus any remaining bond premium at the redemption date

which of the following is not a condition that indicates a capital lease?

the lessee may purchase the property at fair market value anytime during the lease period.

When authorizing bonds to be issued, the board of directors does not specify the

total number of bonds authorized to be sold

The amortization of premium on bonds payable:

will decrease bond interest expense