ACC 342 Lecture Notes - Lecture 1: Accrued Interest, Retained Earnings, Book Value

25 views22 pages

indigolion532

18 May 2018

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

1) Companies usually make bond interest payments semiannually, although the interest rate is generally

expressed as an annual rate.

True

2) Amortization of a premium increases bond interest expense, while amortization of a discount

decreases bond interest expense.

False

3) The debt to assets ratio will go up if an equal amount of assets and liabilities are added to the balance

sheet.

True

4) Bond issue costs are capitalized as a deferred charge and amortized to expense over the life of the

bond.

True

5) When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on

June 1, the amount of cash received by the issuer will be

a. decreased by accrued interest from June 1 to November 1.

b. decreased by accrued interest from May 1 to June 1.

c. increased by accrued interest from June 1 to November 1.

d. increased by accrued interest from May 1 to June 1.

6) Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of

issue. If the bonds were issued at a premium, this indicates that:

a. the effective yield or market rate of interest exceeded the stated (nominal) rate.

find more resources at oneclass.com

Unlock document

This preview shows pages 1-3 of the document.
Unlock all 22 pages and 3 million more documents.

Already have an account? Log in

b. the nominal rate of interest exceeded the market rate.

c. the market and nominal rates coincided.

d. no necessary relationship exists between the two rates.

b. the nominal rate of interest exceeded the market rate.

7) Under the effective-interest method of bond discount or premium amortization, the periodic interest

expense is equal to:

a. the market rate of interest multiplied by the face value of the bonds.

b. the stated rate multiplied by the beginning-of-period carrying amount of the bonds.

c. the market rate multiplied by the beginning-of-period carrying amount of the bonds.

d. the stated (nominal) rate of interest multiplied by the face value of the bonds.

c. the market rate multiplied by the beginning-of-period carrying amount of the bonds.

8) Downing Company issues $4,000,000, 6% 5-year bonds dated January 1, 2014 on January 1, 2014. The

bonds pay interest semi-annually on June 30 and December 31. The bonds are issued to yield 5%. What

are the proceeds from the bond issue?

The PV of $1 for 10 periods at 2.5% is .78120

The PV of an annuity for 10 periods at 2.5% is 8.74206

a. $4,000,000

b. $4,173,195

c. $4,175,047

d. $4,173,847

find more resources at oneclass.com

Unlock document

This preview shows pages 1-3 of the document.
Unlock all 22 pages and 3 million more documents.

Already have an account? Log in

c. $4,175,047

9) Kant Corporation retires its $300,000 face value bonds at 102 on January 1, following the payment of

interest The carrying value of the bonds at the redemption date is $288,750. The entry to record the

redemption will include a:

a. credit of $11,250 to Loss on Bond Redemption.

b. credit of $11,250 to Discount on Bonds Payable.

c. debit of $17,250 to Gain on Bond Redemption.

d. debit of $17,250 to Premium on Bonds Payable.

b. credit of $11,250 to Discount on Bonds Payable.

10) At December 31, 2014 the following balances existed on the books of Foxworth Corporation.

Bonds Payable $4,000,000

Discount on Bonds Payable 320,000

Interest Payable 100,000

Unamortized Bond Issue Costs 240,000

If the bonds are retired on January 1, 2015 at 102, what will Foxworth Corporation report as a loss on

redemption?

a. $740,000

b. $640,000

c. $540,000

d. $400,000

b. $640,000

1) Common stock is the residual corporate interest that bears the ultimate risks of loss.

True

find more resources at oneclass.com

Unlock document

This preview shows pages 1-3 of the document.
Unlock all 22 pages and 3 million more documents.

Already have an account? Log in

Document Summary

Companies usually make bond interest payments semiannually, although the interest rate is generally expressed as an annual rate. True: amortization of a premium increases bond interest expense, while amortization of a discount decreases bond interest expense. False: the debt to assets ratio will go up if an equal amount of assets and liabilities are added to the balance sheet. True: bond issue costs are capitalized as a deferred charge and amortized to expense over the life of the bond. True: when the interest payment dates of a bond are may 1 and november 1, and a bond issue is sold on. The bonds pay interest semi-annually on june 30 and december 31. The pv of for 10 periods at 2. 5% is . 78120. True: participating preferred stock requires that if a company fails to pay a dividend in any year, it must make it up in a later year before paying any common dividends.

Related Questions

Please show the work.

Presented below are selected transactions on the books ofSimonson Corporation.

May 1, 2014		Bonds payable with a par value of $934,800, which are datedJanuary 1, 2014, are sold at 105 plus accrued interest. They arecoupon bonds, bear interest at 11% (payable annually at January 1),and mature January 1, 2024. (Use interest expense account foraccrued interest.)
Dec. 31		Adjusting entries are made to record the accrued interest onthe bonds, and the amortization of the proper amount of premium.(Use straight-line amortization.)
Jan. 1, 2015		Interest on the bonds is paid.
April 1		Bonds with par value of $365,500 are called at 102 plus accruedinterest, and redeemed. (Bond premium is to be amortized only atthe end of each year.)
Dec. 31		Adjusting entries are made to record the accrued interest onthe bonds, and the proper amount of premium amortized.

Prepare journal entries for the transactions above.

fuchsiaraccoon556

Legacy issues $650,000 of 5.0%, four-year bonds dated January 1,2015, that pay interest semiannually on June 30 and December 31.They are issued at $584,361 and their market rate is 8% at theissue date.

1 Record the issue of bonds with a par value of $650,000 cash onJanuary 1, 2015 at an issue price of $584,361.

2.Determine the total bond interest expense to be recognizedover the bonds' life.

3.Prepare a straight-line amortization table for the bonds'first two years.

4.Record the interest payment and amortization on June 30,2015.

5.Record the interest payment and amortization on December 31,2015.

yellowyellowjacket592

Entries for Bonds Payable, including bond redemption

The following transactions were completed by Montague Inc., whose fiscal year is the calendar year:

Year 1
July 1.	Issued $55,000,000 of 10-year, 9% callable bonds dated July 1, Year 1, at a market (effective) rate of 7%, receiving cash of $62,817,040. Interest is payable semiannually on December 31 and June 30.
Dec. 31.	Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment.
31.	Closed the interest expense account.
Year 2
June 30.	Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment..
Dec. 31.	Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment.
31.	Closed the interest expense account.
Year 3
June 30.	Recorded the redemption of the bonds, which were called at 103. The balance in the bond premium account is $6,253,632 after payment of interest and amortization of premium have been recorded. (Record the redemption only.)

1. Journalize the entries to record the foregoing transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. When required, round amounts to the nearest dollar.

Year 1 July1


Dec.31


Dec.31

Year 2 June 30


Dec.31


Dec.31

Year 3 June 30

2. Indicate the amount of the interest expense in (A) Year 1 and (B) Year 2.

a. Year 1	$
b. Year 2	$

3. Determine the carrying amount of the bonds as of December 31, Year 2.

maroonhedgehog495

ACC 342 Lecture Notes - Lecture 1: Accrued Interest, Retained Earnings, Book Value

Document Summary

Get access

Related Documents

ACCT 1A Lecture Notes - Lecture 23: Interest Expense, Book Value

AFM101 Chapter Notes - Chapter 11: Effective Interest Rate, Amortization Schedule, Interest Expense

ACCT 1209 Lecture Notes - Lecture 27: Amortization Schedule, Interest Expense, Income Statement

Related Questions