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## Final Exam - ACCT 2101 (40 Cards)

Beginning of Chapter 10
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
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.
If the contract rate is equal to the market rate, a bond will sell at  (a)
Par Value
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
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

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
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

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
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

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
Cash       1,081,145
Premium on Bonds Payable       81,145
Bonds Payable                              1,000,000
What type of account is a "Premium on Bonds Payable"?
An "Adjunct Liability Account"
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
Amortizing the Premium                     the Interest Expense over the life of the bond.
Decreases
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
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
What is the Bond retirement acronym?
B
L    G
P    D
C
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
Beginning of Chapter 11
What are the three disadvantages of a Corporation?
1. Governmental regulation
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
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
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
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
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
What is Treasury Stock?
Shares Issued but not Outstanding.

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
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
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
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

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
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
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
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
What is the JE on the date of declaration for cash dividends of \$20,000?
Retained Earnings       20,000
Common Dividends Payable       20,000
What is the JE on the date of record for cash dividends of \$20,000?
NONE
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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