Beginning of Chapter 10
What are Term/Serial Bonds?
What are Term/Serial Bonds?
Bonds that mature at a certain date.
What is a secured bond? Unsecured?
secured- a bond with collateral
unsecured- a bond without callateral
unsecured- a bond without callateral
What is the difference between a Registered and Bearer bond?
A registered bond has a known owner.
A bearer bond is more risky b/c the owner is unknown.
A bearer bond is more risky b/c the owner is unknown.
If the contract rate is less than the market rate, then a bond will sell at (a) .
Discount
If the contract rate is greater than the market rate, then a bond sells at (a) .
Premium
What is the selling price of a bond?
Present Face Value (FV) + Present value of Annuity of Interest Payments
What is the JE for the following bond's issuance? What is the JE for the payment of Interest? What is the JE for its retirement?
Given:
Par value: 1,000,000
Stated Interest Rate: 10%
Market Interest Rate: 10%
Interest Dates: 6/30/2012 and 12/31/2012
Issue date: 1/1/2012
Given:
Par value: 1,000,000
Stated Interest Rate: 10%
Market Interest Rate: 10%
Interest Dates: 6/30/2012 and 12/31/2012
Issue date: 1/1/2012
JE for Issuance:
Jan 1 Cash 1,000,000
Bonds Payable 1,000,000
JE for Payment of Interest
June 30 Bond Interest Exp 50,000
Cash 50,000
1,000,000 x 0.10 x 1/2 (yr) = 50,000
JE for Retirement of Bond
Dec 31 Bonds Payable 1,000,000
Cash 1,000,000
Jan 1 Cash 1,000,000
Bonds Payable 1,000,000
JE for Payment of Interest
June 30 Bond Interest Exp 50,000
Cash 50,000
1,000,000 x 0.10 x 1/2 (yr) = 50,000
JE for Retirement of Bond
Dec 31 Bonds Payable 1,000,000
Cash 1,000,000
Is a discount debited or credited on the issuance of a bond? How is a discount calculated?
Debited
Par Value - Issuing Price of Bond (given) = discount
Par Value - Issuing Price of Bond (given) = discount
How is the Carrying Value of a bond at a Discount found? What is the Carrying value given the following?
Given:
Par value = 1,000,000
Discount (unamortized): 73,595
Given:
Par value = 1,000,000
Discount (unamortized): 73,595
FV - Unamortized discount = Carrying Value at a Discount
1,000,000 - 73,595 = 926,405
1,000,000 - 73,595 = 926,405
How do you calculate the Interest Exp for bonds issued at a Discount?
Given:
Life: 5 yrs
FV: 1,000,000
Rate: 10%
Issuing Price of Bond: 926,405
Given:
Life: 5 yrs
FV: 1,000,000
Rate: 10%
Issuing Price of Bond: 926,405
FV
+
Interest Payments for 5 yrs (1,000,000 x 10% x 5)
=
Total to be Paid
-
Amt. received from Bondholders
=
Total Bond Interest Exp.
Example:
1,000,000
+
500,000
=
1,500,000
-
926,405
=
573,595
+
Interest Payments for 5 yrs (1,000,000 x 10% x 5)
=
Total to be Paid
-
Amt. received from Bondholders
=
Total Bond Interest Exp.
Example:
1,000,000
+
500,000
=
1,500,000
-
926,405
=
573,595
Given the Total Bond Exp, what is the JE for the Semiannual Interest Expense?
Given:
Total Bond Exp: 573,595
Life: 5 yrs
FV: 1,000,000
Rate: 10%
Issue Price: 926,405
Given:
Total Bond Exp: 573,595
Life: 5 yrs
FV: 1,000,000
Rate: 10%
Issue Price: 926,405
Bond Interest Exp 57,360
Discount on Bonds Payable 7,360
Cash 50,000
Cash:
1,000,000 x 10% x 1/2 = 50,000
Discount on Bonds Payable:
1,000,000 - 926,405 = 73,595 (rounded to 73,600) / 10 = 7,360
Bond Interest Exp
573,595 / 10 (rounded) = 57,360
Discount on Bonds Payable 7,360
Cash 50,000
Cash:
1,000,000 x 10% x 1/2 = 50,000
Discount on Bonds Payable:
1,000,000 - 926,405 = 73,595 (rounded to 73,600) / 10 = 7,360
Bond Interest Exp
573,595 / 10 (rounded) = 57,360
T/F: Amortizing the discount decreases Interest Exp over the life of the bond.
False - Increases
If the Issuing Price of a bond is greater than Par, the bond will sell at a .
Premium
What is the JE of the Issuance of a bond at a Premium given the following?
Given:
Issue Price: 1,081,145
Par: 1,000,000
Given:
Issue Price: 1,081,145
Par: 1,000,000
Cash 1,081,145
Premium on Bonds Payable 81,145
Bonds Payable 1,000,000
Premium on Bonds Payable 81,145
Bonds Payable 1,000,000
1) What is the Total Bond Interest Exp for the following bond.
2) What is the JE for its Semiannual Interest Exp?
Face Value: 1,000,000
Issue Price: 1,081,145
Stated Interest: 10%
Market Interest: 8%
2) What is the JE for its Semiannual Interest Exp?
Face Value: 1,000,000
Issue Price: 1,081,145
Stated Interest: 10%
Market Interest: 8%
1)
1,000,000 + 500,000 (1,000,000 x 10% x 5) = 1,500,000
1,500,000 - 1,081,145 = 418,855
2)
Bond Interest Expense 41,885
Premium on Bonds Payable 8,115
Cash 50,000
Premium on Bonds Payable / 10 = 8,115
1,000,000 + 500,000 (1,000,000 x 10% x 5) = 1,500,000
1,500,000 - 1,081,145 = 418,855
2)
Bond Interest Expense 41,885
Premium on Bonds Payable 8,115
Cash 50,000
Premium on Bonds Payable / 10 = 8,115
What is the JE for Bond Retirement for A, B, and C?
A) Par
B) Discount
C) Premium
A) Par
B) Discount
C) Premium
A,B, and C)
Bonds Payable 1,000,000
Cash 1,000,000
Bonds Payable 1,000,000
Cash 1,000,000
What is necessary to retire a bond before maturity? (basically the JE)
1) Record "Amortization of Premium" or "Amortization of Discount" (up to date)
2) Record Retirement of Bonds:
i. Debit "Bonds Payable" (@ FV)
ii. Remove "Unamortized Premium" with Debit
or
Remove "Unamortized Discount" with Credit
iii. Record "Cash" (@ Retirement Price)
iv. Record "Gain on Retirement" with a Credit
or
Record "Loss on Retirement" with a Debit
2) Record Retirement of Bonds:
i. Debit "Bonds Payable" (@ FV)
ii. Remove "Unamortized Premium" with Debit
or
Remove "Unamortized Discount" with Credit
iii. Record "Cash" (@ Retirement Price)
iv. Record "Gain on Retirement" with a Credit
or
Record "Loss on Retirement" with a Debit
How do you determine whether the retirement of a bond is a Gain or a Loss?
Carrying Value > Retirement Price = Gain
Carrying Value < Retirement Price = Loss
Carrying Value < Retirement Price = Loss
Beginning of Chapter 11
What are the three disadvantages of a Corporation?
What are the three disadvantages of a Corporation?
1. Governmental regulation
2. Corporation taxation
3. Income taxed twice
2. Corporation taxation
3. Income taxed twice
Where is an application sent to form a corporation and what is issued in return?
Sent to State gov.
State gov. issues a "Charter" and corporation is formed
State gov. issues a "Charter" and corporation is formed
Where is an application sent to form a corporation and what is issued in return?
Sent to State gov.
State gov. issues a "Charter" and corporation is formed
State gov. issues a "Charter" and corporation is formed
Where is an application sent to forma corporation and what is issued in return?
Sent to State gov.
State gov. issues a "Charter" and corporation is formed
State gov. issues a "Charter" and corporation is formed
What are your rights as a stockholder?
-vote at stockholders meetings
-sell stock
-Pre-emptive right to purchase additional shares
-receive dividends, if declared
-share equally assets remaining after creditors are paid in a liquidation
-sell stock
-Pre-emptive right to purchase additional shares
-receive dividends, if declared
-share equally assets remaining after creditors are paid in a liquidation
What are Authorized, Issued, and Outstanding stocks?
Authorized - stock authorized by the state to sell to public
Issued - only the shares offered to the public
Outstanding - shares owned
Issued - only the shares offered to the public
Outstanding - shares owned
What is Treasury Stock?
Shares Issued but not Outstanding.
Un-owned shares on the market.
Un-owned shares on the market.
What is Preferred Stock?
typically have priority over common shares in:
-dividends distribution
-distribution of assets in case of liquidation
However,
-usually has a fixed return
-has no voting rights
-dividends distribution
-distribution of assets in case of liquidation
However,
-usually has a fixed return
-has no voting rights
Why issue Preferred Stock?
-to raise capital without sacrificing control
-to boost the return earned by common stockholders through financial leverage
-appeals to investors who don't want a lot of risk
-to boost the return earned by common stockholders through financial leverage
-appeals to investors who don't want a lot of risk
What are the two types of Preferred Stock? What type is most common?
Cumulative:
Dividends in arrears must be paid before dividends may be paid on CS (most common)
Noncumulative:
Undeclared dividends from current and prior years do not have to be paid in future years
Dividends in arrears must be paid before dividends may be paid on CS (most common)
Noncumulative:
Undeclared dividends from current and prior years do not have to be paid in future years
What are the other four types of Preferred Stock?
Participating vs. Nonparticipating
Part- dividends may exceed a stated amt. once common stockholders receive a dividend equal to the preferred state rate
Non- dividends limited to a max amt. each year. The max is usually the stated div. rate. (Most Pref. Stock is Nonparticipating)
Convertible
-right to be converted to fixed number of common shares
Callable
-issuing company can purchase or retire stock a specified future prices
Part- dividends may exceed a stated amt. once common stockholders receive a dividend equal to the preferred state rate
Non- dividends limited to a max amt. each year. The max is usually the stated div. rate. (Most Pref. Stock is Nonparticipating)
Convertible
-right to be converted to fixed number of common shares
Callable
-issuing company can purchase or retire stock a specified future prices
What is the JE for issuing Common Stock at a Premium?
Given:
10,000 shares, $10 par, $12/share
Given:
10,000 shares, $10 par, $12/share
Cash 120,000
CS 100,000
Paid in Capital in excess of par 20,000
CS 100,000
Paid in Capital in excess of par 20,000
What is the JE for issuing Common Stock in exchange of Non-cash assets?
Given:
10,000 shares, $10 par in exchange of Land @ $50,000 and Building @ $90,000
Given:
10,000 shares, $10 par in exchange of Land @ $50,000 and Building @ $90,000
Land 50,000
Building 90,000
CS 100,000
PIC 40,000
Building 90,000
CS 100,000
PIC 40,000
What is the JE for issuing Common Stock in exchange of services to form Corporation?
Given:
800 shares, $10/share, $12,000 services
Given:
800 shares, $10/share, $12,000 services
Organization Exp 12,000
CS 8,000
PIC 4,000
CS 8,000
PIC 4,000
What is the JE for issuing Preferred Stock?
Given:
5,000 shares @ $50 par; Preferred stock at $60/share
Given:
5,000 shares @ $50 par; Preferred stock at $60/share
Cash 300,000
Preferred Stock 250,000
PIC Preferred 50,000
Preferred Stock 250,000
PIC Preferred 50,000
What is the JE on the date of declaration for cash dividends of $20,000?
Retained Earnings 20,000
Common Dividends Payable 20,000
Common Dividends Payable 20,000
What is the JE on the date of payment for cash dividends of $20,000?
Common Dividends Payable 20,000
Cash 20,000
Cash 20,000
Kartensatzinfo:
Autor: savhighsmith
Oberthema: Accounting
Thema: General
Schule / Uni: UGA
Ort: Athens
Veröffentlicht: 01.05.2010
Tags: Swati Bhandikar
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