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Exam 11: Reporting and Interpreting Stockholders Equity

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Question 41

True/False

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Total interest cost for a bond issued at a premium equals the total of the periodic interest payments added to the premium.

A) True
B) False

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Question 42

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Bonds issued at a premium reduce:

A) the bond value to be shown on the balance sheet.
B) the perceived risk to the bondholder.
C) the cost of borrowing.
D) the interest payments to be made to the bondholder.

E) A) and B)
F) B) and C)

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Question 43

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The financial leverage ratio compares the amount of capital supplied by creditors to the amount supplied by owners.

The debt to total assets ratio measures the percentage of the total assets provided by creditors.

Kristen's grandmother promises to give her $1,000 at the end of five years. How much is the money worth today, assuming Kristen could invest the money and earn a 6% annual rate of return? (Round to the nearest dollar) .

Wheel Company purchased an asset that cost $70,000 on January 1, 20A. Arrangements were made with the supplier to pay $10,000 cash on January 1, 20A, and the balance was to be paid over a three-year period, with equal annual payments of $24,553 to be made at the end of 20A, 20B, and 20C. Each payment will include principal plus interest on the unpaid balance at 11% per year. A. Complete the following table. * Round to reduce principal to zero. B. Give the entry for the payment on December 31, 20B C. On the debt payment schedule, what is the trend of amounts for interest expense and principal reduction over time? Explain your response.

Accurate Numbers, Inc., issued $100,000 of 10 year, 12% bonds dated April 1, 20A, for $102,360 on April 1, 20A. The bonds pay interest on April 1 and October 1. Straight-line amortization is used by the company. What entry is needed at October 1 for the first interest payment?

Kristen's grandmother promises to give her $3,000 at the end of three years and $4,000 at the end of four years. How much is the money worth today if Kristen could earn 6% annual interest on the funds?

On January 1, 20A, Tie Company purchased a machine that had a sticker (list) price of $22,000. The seller agreed to allow Tie Company to pay for the machine over a three-year period at 10% interest on the unpaid balance and with equal payments of $8,444 due at the end of 20A, 20B, and 20C. What is the amount that should be debited to the asset account, Machinery, on the day the contract was initiated is (rounded to the nearest dollar) ?

The effective-interest method of amortization results in a constant percentage rate.

Roy Company sold the following ten-year bonds payable on January 1, 20A: $100,000 maturity value, 5% interest payable annually on each December 31. The bonds were dated January 1, 20A and the accounting period ends December 31. The bonds were sold at 98. (a) Fill in each blank to the right (assume straight-line amortization) (b) Assuming the account period ends on June 30, give the adjusting entry related to interest expense for 19A

On January 1, 20A, Ross Company acquired a truck that had a purchase price of $20,000. The seller agreed to allow Ross to pay for the truck over a two-year period at 10% interest with equal payments due at the end of 20A and 20B. What is the amount of each annual payment the company must make (round to the nearest dollar) ?

Bonds payable usually are classified on the statement of financial position as which of the following?

Millwood Company prepared a bond issue dated January 1, 20A. On January 1, 20A, the company sold $100,000 of its par value bonds at 103. The bonds mature in thirty years and have a stated rate o interest of 8% per year. Interest is payable annually on December 31. Straight-line amortization is us (round to the nearest dollar). (a) Give the entry to record the sale of bonds on January 1, 20A: (b) Give the entry to record interest expense at December 31, 20A (end of the annual accounting period) (c) Show how the bonds would be reported on the balance sheet of Millwood Company dated December 31, 20C

The future value of $1 is always more than $1, whereas the present value of $1 is always less than $1.

When a bond is issued at a discount, the amount of interest expense for an interest period is calculated by multiplying the amount times the interest rate during the period.

If bonds have been issued at a discount, then over the life of the bonds the

The carrying amount of bonds issued at a discount will initially be higher than the face value.

An annuity is a series of consecutive payments, each one increasing by a fixed dollar amount over the payment amount of the prior year.

If bonds are issued at a discount, the issuing corporation will pay a principal amount less than the face amount of the bonds on the maturity date.