ACCT 1A Lecture Notes - Lecture 28: Book Value

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magentamuskrat366

9 Aug 2020

School

Irvine Valley College

Department

Accounting

Course

ACCT 1A

Professor

urell

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Document Summary

Financing activities on the statement of cash flows. The issuance of long-term debt is reporting as a cash inflow from financing. The repayment of principal is reported as an outflow from financing activities. Interest paid may be reported in either the operating or the financing section of the statement of cash flows. Reporting interest expense on bonds by using the straight-line amortization method. The straight-line amortization allocates an equal amount to each interest period, because it is relatively easy to computer the required numbers. Private enterprises are permitted to use the straight-line method because the amortized discounts or premiums that result from the two methods are normally not materially different. Bonds issued at a discount: interest periods. Ex: ,00 bond issue was sold at a discount of ,356 that has a 20 six-month. Therefore the amount amortized on each semi-annual interest date is ,718 =

Related Questions

Erroneous Statement of Cash Flows

Ryan Company's bookkeeper prepared the following 2016 statement of cash flows:

Flows of Cash Statement December 31, 2016
Sources (Inflows) of Cash
Net Source from Operations
Net income	$47,800
Add: Cash receipt from sale of land	6,500
Inflow from issuing 10% bonds payable	25,000
Depreciation expense	13,200
Reduction in inventory	1,900
Less: Outflow to buy equipment	(16,400)
Increase in prepaid expenses	(700)
Cash (principal) paid on long-term note	(9,500)
ordinary gain	(2,000)
Total source from operations		$65,800
Other Sources (Inflows) of Cash
Loss on sale of land	$2,300
Increase in accounts payable	1,000
Cash from issuing preferred stock	38,700
Patent amortization expense	2,100
Total other sources of cash		44,100
Sources (Financing) Not Affecting Cash
Issuance of common stock for patent		11,000
Total inflows of cash		$120,900
Uses (Outflows) of Cash
To purchase building	$(62,000)
Increase in accounts receivable	(7,800)
For acquiring marketable securities	(7,100)
Decrease in income taxes payable	(1,400)
Total uses of cash		(78,300)
Uses (Investing) Not Affecting Cash
Acquisition of patent by issuing common stock		(11,000)
Net inflow before dividends		$ 31,600
Less: Cash dividends		(24,000)
Net increase in cash		$7,600
Cash, January 1, 2016		15,300
Cash, December 31, 2016		$22,900

After a thorough investigation, you have determined that the amounts of the items listed on the statement are correct. However, you notice several items that are incorrectly classified and reported.

Required

Prepare a corrected 2016 statement of cash flows for the Ryan Company. Use the minus sign to indicate cash outflows, a decrease in cash or cash payments.

Operating Activities

________________ __________

Adjustment for non cash income items:

________________ __________

Adjustments for cash flow effects from working capital items:

________________ __________

Net cash provided by operating activities ____________

Investing Activities:

________________ __________

Net cash used for investing activities _________

Financing Activities:

________________ __________

Net cash provided by financing activies _________

Net increase in cash _________

Cash, january 1, 2016 _________

Cash, december 31, 2016 _________

Investing and Financing Activities not Affecting Cash

Investing Activities:

Acquistion of patent by issuing commons stock ______________

Financing Activities:

Issuance of common stock for patent ____________

ivorymallard438

Which of the following characteristics may result in theclassification of a liability being changed from current tononcurrent:

a) violation of a subjective acceleration clause

b) violation of a objective acceleration clause

c) a demand provision for payment

d) refiancing after the balance sheet date

Pending litigation would generally be considered:

a) nonmonetary liabilty

b) contingent liability

c) estimated liability

d) current liability

Barrons Co. current ratio is 2:1. Which of the followingtransactions would normally increase Barney's current ratio?

a) purchasing inventory on account

b) borring money by signing a long-term note

c) collecting an account receivable

d) purchasing land for cash

On multiple step income statement, gains or losses on sale ofequipment would be shown

a) before gross profit on sales

b) after gross profit on sales but before income from conitnuingoperations

c) after income from continuing operations but before incomefrom extraordinary items

d) after income before extraordinary items but before netincome

A single step income statement is a format that

a) compares the current years income with last year's income

b) recongnizes subtotals at intermediate stages such as grossmargin

c) combines revenues and gains and subtracts from them expensesand losses, resulting in income from operations

d) reports sales revenue, cost of goods sold, gross margin, andall other expenses

In contrast with a multiple-step income statement, a single stepincome statement does NOT show the amount of

a) income taxes on continuing operations

b) cost of goods sold

c) gross profit

d) earnings per share

The amount of income reported for tax purposes

a) is nomally greater than the net income reported tostockholders

b) must be computed according to GAAP

c) is used to compute earnings per share

d) may differ from the amount of income detemined for financialreporting purposes

Under the general rule of revenue recognition, revenue isrecognized when

a) marketability and market price are assured

b) a contractual agreement exists, and cash collection isassured

c) the earnings process is complete, and a valid promise ofpayment has been received

d) all related expenses have been incurred

Seaworth Company's gross sales in 2014 were 3930000. Assumingsales returns and allowances were 74000 sales discounts were 35000and freight-out was 28000 what were Seaworthy's net sales in2014?

a) 3792000

b) 3821000

c)3856000

d) 3930000

On June 30, 2014 Sonata COmpanys operating facilities inNebraska were detroyed by a flood. The loss of $700000 was notcovered by insurance. Sonata's tax rate for 2014 is 40 percent. InSonatas income statement for the year ended sept 30 2014 this eventshould be reported as an extraordinary loss of

a) 0

b) 280000

c) 420000

d) 700000

In a statement of cash flows, payments to acquire debtinstruments of other entities would typically be classified as cashoutflows for

a) financing activities

b) equity activities

c) operating activities

d) investing activities

A gain on the sale of a plan asset in the ordinary course ofbusiness should be presented in a staement of cash flows preparedusing the indirect method as

a) a cash inflow from investing activities

b) a cash inflow from financing activities

c) a deduction from net income

d) a addition to net income

In a statement of cash flows, proceeds from issuing equityinstruments should be classified as cash inflows from

a) brokerage activities

b) financing activities

c) investing activites

d) operating activities

When preparing a statement of cash flows using the indirectmethod, the amortization of trademarks should be reported as a

a) increase in cash flows from investing activities

b) reduction in cash flows from investing activities

c) increase in cash flows from operating activities

d) reduction in cash flows from operating activites

A loss in the sale of machinery in the ordinary course ofbusiness should be presented in a statement of cash flows( indirectmethod) as

a) an addition to net income

b) a deduction from net income

c) an inflow and outflow of cash

d) an outflow of cash

In preparing a statement of cash flows, which of the followingtransactions would be considered an investing activity?

a) sale of a business segment

b) Issuance of bonds payable at a discount

c) purchase of treasury stock

d) sale of capital stock

In a statement of cash flows (indirect method), depreciation istreated as an adjustment to reported net income becausedepreciation

a) is an inflow of cash to reserve account for assetreplacement

b) reduces the reported net income and involves an inflow ofcash

c) reduces the reported net inome but does not involve anoutflow of cash

d) usually represents a significant portion of operatingexpense

orchidfrog938

TRUE OR FALSE?

1. Bondholders are crditors of the issuing corporation.

2. bondholders claims on the assets of the corporation rank aheadof stockholders

3. the prices of bonds are quoted as a percentage of the bonds'market value

4. when the market rate of interest is less than the contract ratefor a bond, the
bond will sell for a premium.

5. an equal stream of periodic payments is called an annuity.

6.one reason a dollar today is worth more than a dollar 1 year fromtoday is the time
value of money.

7. if the straight-line method of amortization is used, the amountof unamortization
premium on bonds payable will decrease as the bonds approachmaturity.

8. if the amount of a bond premium on an issued 11% 4-year,$100,000 bond is $12,928, the amiannual straight-line amortizationof the premium is $1,416.

9. The issue price of zero-coupon bonds is the present value oftheir face amount.

10. if sinking fund cash is used to purchase investments,thoseinvestments are
reported on the balance sheet as marketable securities.

11. callable bonds can be redeemed by the issuing corporation atthe fair market
price of the bonds.

12. if bonds of $1,000,000 with unamortized discount if $10,000 areredeemed at 98,
the gain on redemption of bonds is $10,000

13. Amortization is the allocation process of writing off bondpremiums and discounts to interest expense over the life of thebond issue.

14. the amortization of a premium on bonds payable decreses bondinterest expense.

15. the balance in premium on bonds payable should be reported as adeduction from bonds payable on the balance sheet.

Multiple Choice:
16. one potential advantage of financing corportations through theuse of bonds rather than common stock is
a.the interest on bonds must be paid when due
b.the corporation must pay the bonds at maturity
c.the interest expense is deductable for tax purposes by thecorporation
d.a higher earnings per share is guarenteed for existing commonshareholders

17. when the corporation issuing the bonds has the right torepurchase the bonds prior to the maturity date for a specificprice, the bonds are
a. convertible bonds
b.unsecured bonds
c.debenture bonds
d.callable bonds

18.the present value of $30,000 to be received in 2 years, at 12%compounded annually is (rounded to nearest dollar)
a. $23,916
b.$37,632
c.23,700
d.30,000

19. An unsecured bons is the same as a
a. debenture bond
b. zero coupon bond
c. term bond
d. bond indenture

20. if $1,000,000 of 8% bonds are issued at 102 1/2, the amount ofcash recieved from the sale is
a.$1,080,000
b.$975,000
c.$1,000,000
d.$1,025,000

21. A corporation issues for cash $1,000,000 of 8%,20-year bonds,interest payable annually, at a time when the market rate ofinterest is 7%. the straight-line method is adopted for theamortization of bond discount or premium. which of the following istrue?
a. the carrying amount increases from its amount at issuance dateto $1,000,000 at maturity.
b. the carrying amount decreases from its amount at issuance dateto $1,000,000 at maturity.
c.the amount of annual interest paid to bondholders increases overthe 20-year life of the bonds
d.the amount of annual interest expense decreases as the bondsapproach maturity.

22. When the market rate of interest was 11%, Waverly corporationissued $1,000,000,12%,8-year bonds that pay interest semiannually.the selling price of this bond issue was
a. $1,052,310
b. $1,154,387
c.$1,000,000
d.720,495

23. The journal entry a company records for the issuance of bondswhen the contract rate is less than the market rate would be
a.debit bonds payable, credit cash
b.debit cash and discount on bonds payable, credit bondspayable
c.debit cash, credit premium on bonds payable and bondspayable
d.debit cash, credit bonds payable

24. On januaray 1,2007 the kings corporation issued 10% bonds witha face value of $100,000. the bonds are sold for $96,000. The bondspay interest semiannually on june 30 and december 31 and thematuritydate is december 31,2011. kings records straight-lineamortization of the bond discount. the bond interest expense forthe year ended dec 31,2007 is
a. $9,200
b.$9,800
c.$10,400
d.$10,800

25.If the market rate of interest is 10%, a $10,000, 12%, 10-yearbond that pays interest semiannually would sell at an amount
a.less tha face value
b.equal to face valur
c.greater thand face value
d.that cannot be determined

26. the torrez corporation issue a $1,000, 10-year bonds, 8%,$1,000 bonds dated jan 1,2007 at 97. the journal entry to recordthe issuance will show a
a.credit to discount on bonds payable for $30,000
b.debit to cash of $1,000,000
c.credit to bonds payable for $1,000,000
d.credit to cash for $970,000

27.bonds with a face amount $1,000,000 are sold at 97. the entry torecord the issuance is
a.Cash $1,000,000
Premium on bonds payable $30,000
Bonds Payable &nbÃµns?x.?H?mnbsp;$970,000
b.Cash $970,000
Premium on bonds payable $30,000
bonds payable $1,000,000
c.Cash $970,000
Discount on bonds payable $30,000
Bonds payable $1,000,000
d.Cash $970,000
Bonds Payable $970,000

28. the cash and securities comprising a sinking fund establishedto redeem bonds at maturity in 2015 should be classified on thebalance sheet as
a.fixed asset
b.current asset
c.intangable assets
d.investments

29. when callable bonds are redeemed below carrying value
a. gain on redemption of bonds is credited
b.loss on redemption of bonds is debited
c.retained earnings is credited
d.retained earnings is debited

silverbee836

ACCT 1A Lecture Notes - Lecture 28: Book Value

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