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Final Exam - ACCT 2101 (40 Cards)

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Beginning of Chapter 10
What are Term/Serial Bonds?
Bonds that mature at a certain date.
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What is a secured bond? Unsecured?
secured- a bond with collateral

unsecured- a bond without callateral
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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.
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If the contract rate is equal to the market rate, a bond will sell at  (a)                
Par Value
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If the contract rate is less than the market rate, then a bond will sell at (a)                  .
Discount
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If the contract rate is greater than the market rate, then a bond sells at (a)                   .
Premium
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What is the selling price of a bond?
Present Face Value (FV) + Present value of Annuity of Interest Payments
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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
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       

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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
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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
FV - Unamortized discount = Carrying Value at a Discount

1,000,000 - 73,595 = 926,405

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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
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
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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
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


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T/F: Amortizing the discount decreases Interest Exp over the life of the bond.
False - Increases
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If the Issuing Price of a bond is greater than Par, the bond will sell at a               .
Premium
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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
Cash       1,081,145
            Premium on Bonds Payable       81,145
            Bonds Payable                              1,000,000
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What type of account is a "Premium on Bonds Payable"?
An "Adjunct Liability Account"
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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%
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
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Amortizing the Premium                     the Interest Expense over the life of the bond.
Decreases
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What is the JE for Bond Retirement for A, B, and C?
A) Par
B) Discount
C) Premium
A,B, and C)

Bonds Payable       1,000,000
         Cash                          1,000,000
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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
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What is the Bond retirement acronym?
B
L    G
P    D
       C
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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
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Beginning of Chapter 11
What are the three disadvantages of a Corporation?
1. Governmental regulation
2. Corporation taxation
3. Income taxed twice
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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
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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
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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
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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
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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
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What is Treasury Stock?
Shares Issued but not Outstanding. 

Un-owned shares on the market.
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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
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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
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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
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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


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What is the JE for issuing Common Stock at a Premium?

Given:
10,000 shares, $10 par, $12/share
Cash       120,000
       CS                                                          100,000
       Paid in Capital in excess of par         20,000
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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
Land         50,000
Building   90,000
           CS         100,000
           PIC         40,000
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What is the JE for issuing Common Stock in exchange of services to form Corporation?

Given:
800 shares, $10/share, $12,000 services
Organization Exp        12,000
           CS                                   8,000
           PIC                                  4,000
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What is the JE for issuing Preferred Stock?

Given:
5,000 shares @ $50 par; Preferred stock at $60/share
Cash             300,000          
           Preferred Stock         250,000
           PIC Preferred             50,000
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What is the JE on the date of declaration for cash dividends of $20,000?
Retained Earnings       20,000
          Common Dividends Payable       20,000
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What is the JE on the date of record for cash dividends of $20,000?
NONE
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What is the JE on the date of payment for cash dividends of $20,000?
Common Dividends Payable      20,000
           Cash                                                20,000
Flashcard set info:
Author: savhighsmith
Main topic: Accounting
Topic: General
School / Univ.: UGA
City: Athens
Published: 01.05.2010
Tags: Swati Bhandikar
 
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