Q&A Hero

Q: All else being equal, if net income decreases: A) EPS decreases and ROE increases. B) EPS and ROE both decrease. C) EPS increases and ROE decreases. D) EPS and ROE both increase.

Q: If a company's earnings per share and return on equity both increase: A) it could mean that net income is rising or it could mean that the number of outstanding shares is falling. The first is sustainable; the second cannot be continued indefinitely. B) it means that the company is becoming more profitable and stockholders will see greater returns. C) it means that the company's tax liability will rise in the future and cause a decline in profitability. D) it could mean that net income is rising or it could mean that the number of outstanding shares is falling. In either case, stockholders can expect greater future returns indefinitely.

Q: The return on equity ratio measures the: A) return stockholders receive in dividends for each dollar of their investment. B) return stockholders receive in dividends and stock price growth for each dollar of their investment. C) amount of income earned for each dollar of common stockholders equity. D) amount earned by the company on each dollar obtained from equity and debt financing.

Q: A company has net income of $5.6 million. Stockholders' equity at the beginning of the year is $32.55 million and, at the end of the year, it is $38.15 million. The only change to stockholders' equity came from net income. The return on equity ratio is approximately: A) 0.15. B) 0.16. C) 0.87. D) 6.64.

Q: The return on equity ratio is calculated as: A) dividends paid divided by the average book value of stockholders' equity. B) net income divided by the average number of outstanding common shares. C) dividends divided by the average number of total shares. D) (net income less preferred dividends) divided by average common stockholders' equity.

Q: Which one of the following statements about earnings per share (EPS) is correct? A) The EPS ratio is important because it signals the ability of the company to pay future dividends, which investors factor into the stock price. B) Earnings per share (EPS) is generally reported in the balance sheet under stockholders' equity. C) Earnings per share (EPS) is the best way to compare the performance of different companies. D) EPS, in its basic form, is calculated by dividing net income by the average number of common shares issued.

Q: A company reported net income of $5.6 million. At the beginning of the year, 3.4 million shares of common stock were outstanding and at the end of the year, 3.6 million shares were outstanding. No dividends were declared. The EPS is approximately: A) $1.60. B) $1.56. C) $1.65. D) $1.40.

Q: In its most basic form, the earnings per share ratio is calculated as: A) dividends paid on common stock divided by the average number of outstanding common shares. B) the difference between net income and preferred dividends divided by the average number of outstanding common shares. C) total dividends paid divided by the average number of total stock shares. D) net income divided by average stockholders' equity.

Q: Which of the following statements about stock dividends is correct? A) Stock dividends are reported on the income statement. B) Stock dividends are reported on the Statement of Stockholders' Equity. C) Stock dividends increase total stockholders' equity. D) Stock dividends decrease total stockholders' equity.

Q: Which of the following statements about Retained Earnings is correct? A) Retained Earnings represents cash available to pay dividends to stockholders. B) Retained Earnings cannot be restricted by loan covenants. C) Retained Earnings generally consists of cumulative net income less any net losses and dividends since inception. D) Retained Earnings is reduced by the par value of the common stock that is issued.

Q: A debit balance in Retained Earnings is: A) an indication of a contra-equity account. B) called an Accumulated Deficit. C) called a net loss. D) impossible.

Q: The Retained Earnings balance was $22,900 on January 1. Net income for the year was $18,100. If Retained Earnings had a credit balance of $23,800 after closing entries were made for the year, and if additional stock of $5,200 was issued during the year, what was the amount of dividends declared during the year? A) $17,200 B) $23,700 C) $23,300 D) $13,000

Q: Use the information above to answer the following question. If the company pays a $100,000 dividend, and the preferred stock is cumulative and three years dividends are in arrears, what is the amount the preferred stockholders will receive? A) $18,000 B) $24,000 C) $6,000 D) $54,000

Q: Use the information above to answer the following question. If the company pays a $35,000 dividend, and the preferred stock is cumulative and two years dividends are in arrears, what is the amount the common stockholders will receive? A) $17,000 B) $23,000 C) $29,000 D) $35,000

Q: Use the information above to answer the following question. If the company pays a $15,000 dividend and the preferred stock is noncumulative, what is the amount the common stockholders will receive? A) $15,000 B) $9,000 C) $9,900 D) $0

Q: A company has outstanding 9 million shares of $2 par value common stock and 1 million shares of $4 par value preferred stock. The preferred stock has an 8% dividend rate. The company declares $600,000 in total dividends for the year. Which of the following is correct if dividends in arrears are $30,000? A) Preferred stockholders will receive $350,000; common stockholders will receive $250,000. B) Preferred stockholders will receive $60,000; common stockholders will receive $540,000. C) Preferred stockholders will receive $320,000; common stockholders will receive $280,000. D) Preferred stockholders will receive $90,000; common stockholders will receive $510,000.

Q: A company has outstanding 10 million shares of $2 par common stock and 1 million shares of $4 par preferred stock. The preferred stock has an 8% dividend rate. The board of directors declares $300,000 in total dividends for the year. Which of the following is correct if the preferred stockholders have a cumulative dividend preference? A) Preferred stockholders will receive the entire $300,000 and they must also be paid $20,000 before the end of the current accounting period; common stockholders will receive nothing. B) Preferred stockholders will receive $24,000 (or 8% of the total dividends); common stockholders will receive the remaining $276,000 (or $300,000 $24,000). C) Preferred stockholders will receive the entire $300,000 and they must also be paid the remaining $20,000 sometime in the future before common stockholders will receive any dividends. D) Preferred stockholders will receive the entire $300,000, but will receive nothing more in the future relating to this dividend declaration; common stockholders will receive nothing.

Q: Which of the following statements about dividends in arrears is correct? A) Dividends in arrears do not appear on the balance sheet or require a journal entry. B) Dividends in arrears are not disclosed to stockholders. C) Dividends in arrears applies to common stock. D) Dividends in arrears are legal liabilities.

Q: A cumulative dividend preference means that: A) preferred stockholders are paid dividends before common stockholders are paid dividends for the current year only. B) unpaid dividends to preferred stockholders accumulate and must be paid before common stockholders receive dividends. C) preferred stockholders are paid their full fixed dividend rate each period as long as the company is in operation. D) unpaid cash dividends to preferred stockholders must be replaced with stock dividends during the current period.

Q: Fronthouse Corp. issues 10,000 shares of no-par value preferred stock for cash at $60 per share. The journal entry to record the transaction will consist of a debit to Cash for $600,000 and a credit (or credits) to: A) Preferred Stock for $600,000. B) Preferred Stock for $20,000 and Additional Paid-in Capital for $580,000. C) Preferred Stock for $20,000 and Retained Earnings for $580,000. D) Retained Earnings for $600,000.

Q: A company has outstanding 10 million shares of $2 par common stock and 1 million shares of $4 par preferred stock. The preferred stock has an 8% dividend rate. The company declares $300,000 in total dividends for the year. Which of the following is correct if the preferred stockholders only have a current dividend preference? A) Preferred stockholders will receive the entire $300,000, and they must also be paid $20,000 before the end of the current accounting period. Common stockholders will receive nothing. B) Preferred stockholders will receive $24,000 or 8% of the total dividends. Common stockholders will receive the remaining $276,000. C) Preferred stockholders will receive the entire $300,000, and they must also be paid $20,000 sometime in the future before common stockholders will receive anything. D) Preferred stockholders will receive the entire $300,000, but will receive nothing more relating to this dividend declaration. Common stockholders will receive nothing.

Q: A company issues 500,000 shares of preferred stock for $30 a share. The stock has a fixed annual dividend rate of 5% and a par value of $9 per share. The current price of the preferred stock is $32 a share. If sufficient dividends are declared, preferred stockholders can anticipate receiving annual dividends of: A) $0.45 per share. B) $1.50 per share. C) $1.60 per share. D) $1.05 per share.

Q: A company issues 100,000 shares of preferred stock for $40 a share. The stock has fixed annual dividend rate of 5% and a par value of $3 per share. If sufficient dividends are declared, preferred stockholders can anticipate receiving dividends of: A) $5,000 each year. B) $15,000 each year. C) 5% of net income each year. D) $3 per share.

Q: A company issued 8% preferred stock with a $100 par value. This means: A) Preferred stockholders are entitled to 8% of the annual net income. B) Only 8% of total contributed capital can be preferred stock. C) Preferred stockholders are guaranteed a dividend. D) The potential dividend to preferred stockholders is $8 per share per year.

Q: A current dividend preference means that: A) preferred stockholders are paid current dividends before common stockholders are paid dividends. B) unpaid dividends to preferred stockholders accumulate and must be paid before common stockholders receive dividends. C) preferred stockholders are paid their full fixed dividend rate each period as long as the company is in operation. D) unpaid cash dividends to preferred stockholders must be replaced with stock dividends during the current period.

Q: A company issues 100,000 shares of preferred stock for $40 per share. The stock has a fixed dividend rate of 5% and a par value of $3 per share. The company records the issuance with a debit to Cash for: A) $4 million and a credit to Preferred Stock for $4 million. B) $300,000 and a credit to Preferred Stock for $300,000. C) $4 million, a credit to Preferred Stock for $300,000, and a credit to Additional Paid-in Capital for $3.7 million. D) $300,000, a debit for $3.7 million to Long-term Investments , a credit to Preferred Stock for $300,000, and a credit to Additional Paid-in Capital for $3.7 million.

Q: A company issues 1 million shares of preferred stock with a par value of $2 at its market price of $26 per share. The issuance should be recorded with a debit to Cash for: A) $26 million and a credit to Preferred Stock for $26 million. B) $2 million and a credit to Preferred Stock for $2 million. C) $26 million, a credit to Additional Paid-in Capital for $2 million, and a credit to Preferred Stock for $24 million. D) $26 million, a credit to Preferred Stock for $2 million, and a credit to Additional Paid-in Capital for $24 million.

Q: Preferred stock differs from common stock in that: A) preferred stock has more voting power and, as such, greater control over the management of the company. B) preferred stockholders are paid dividends before common stockholders. C) preferred stock pays tax-free dividends. D) preferred stock has no preemptive rights or residual claims.

Q: How do stock splits and stock dividends impact Retained Earnings? A) Stock splits increase Retained Earnings and stock dividends have no effect on Retained Earnings. B) Stock splits have no effect on Retained Earnings and stock dividends decrease Retained Earnings. C) Stock splits and stock dividends both decrease Retained Earnings. D) Stock splits and stock dividends have no effect on Retained Earnings.

Q: Which of the following statements accurately explains why the board of directors of a company whose financial future contains some uncertainties might issue a 2-for-1 stock split rather than declare a 100% stock dividend? A) A stock split would not reduce the market price per share, whereas a stock dividend would. B) A stock split would reduce the market price per share, whereas a stock dividend would not. C) A stock split would increase total stockholders' equity, whereas a stock dividend would not. D) A stock split would not reduce Retained Earnings, whereas a stock dividend would.

Q: Which of the following statements is correct? A) Stock splits and stock dividends both reduce the market price of a share, but only stock splits reduce the par value of a share. B) Stock splits and stock dividends both reduce the market price of a share and the par value of a share. C) Stock splits and stock dividends both reduce the market price of a share, but only stock dividends reduce the par value of a share. D) Stock splits and stock dividends both reduce the market price of a share and reduce Retained Earnings.

Q: Stock dividends and stock splits are similar in all of the following ways except: A) they both involve a pro rata distribution of shares to existing stockholders. B) they both reduce the stock price. C) they both decrease Retained Earnings. D) have no effect on cash.

Q: Which of the following statements about a stock split is correct? A) A stock split decreases Retained Earnings. B) Stock splits do not require a journal entry. C) Stock splits are the same as stock dividends. D) Stock splits increase the par value per share.

Q: A company had 300,000 shares of $10 par value common stock outstanding. The amount of additional paid-in capital is $1,500,000, and Retained Earnings is $450,000.The company issues a 2-for-1 stock split. The market price of the stock is $13. What is the balance in the Common Stock account after this issuance? A) $6,000,000 B) $6,900,000 C) $3,000,000 D) $4,500,000

Q: On September 1, a corporation with 50,000 shares of $5 par value common stock and $1,000,000 of Retained Earnings issues a 2-for-1 stock split. The market price of the stock on that date is $12 per share. Which of the following statements is correct concerning this stock split? A) Contributed capital will increase by $250,000. B) Retained Earnings will decrease by $600,000. C) Dividends payable will increase by 250,000. D) No entry will be made for this transaction.

Q: Which one of the following events would not require a journal entry on a corporation's books? A) 2-for-1 stock split B) 100% stock dividend C) 2% stock dividend D) $1 per share cash dividend

Q: A stock dividend: A) is accounted for like a stock split. B) will reduce stockholders' equity like a cash dividend does. C) will not change any of the accounts within stockholders' equity. D) will reduce Retained Earnings like a cash dividend does.

Q: Which of the following statements about dividends is correct? A) Companies sometimes issue stock dividends to lower the market price per share of stock. B) Stock dividends immediately increase the total value of the stockholders' investment. C) Cash dividends and stock dividends both decrease total stockholders equity. D) A corporation has a legal obligation to pay dividends each year.

Q: A corporation declared a stock dividend on November 1 and issued 9,000 shares of stock to its stockholders. Prior to the dividend, the balance in Retained Earnings was $850,000, the number of shares of $5 par value stock issued and outstanding was 60,000, and the market value of the stock was $12. This stock dividend will cause total stockholders equity to: A) remain unchanged. B) increase by $45,000. C) decrease by $108,000. D) decrease by $63,000.

Q: If a corporation declares and distributes a stock dividend on its common shares: A) the amount of total assets increases. B) stockholders equity decreases. C) contributed capital decreases. D) the account Retained Earnings is decreased.

Q: A stock dividend transfers: A) contributed capital to Retained Earnings. B) Retained Earnings to assets. C) contributed capital to assets. D) Retained Earnings to contributed capital.

Q: The effect of a stock dividend is to: A) decrease total assets and stockholders' equity. B) change the composition of stockholders' equity. C) decrease total assets and total liabilities. D) increase the market value per share of common shares.

Q: Which of the following statements about dividends is not correct? A) Dividends represent a sharing of corporate profits with owners. B) Both stock dividends and cash dividends reduce Retained Earnings. C) Cash dividends paid to stockholders reduce net income. D) Dividends are declared at the discretion of the board of directors.

Q: Which of the following statements about the declaration and payment of cash dividends is correct? A) Declaration and payment of cash dividends will reduce the amount of net income. B) Declaration and payment of cash dividends will not reduce the Retained Earnings balance. C) Declaration and payment of cash dividends will reduce the amount of cash available to invest in assets. D) Declaration and payment of cash dividends is calculated on the amount of shares of stock issued, not the amount of shares outstanding.

Q: The combined effect of the declaration and payment of a cash dividend on a company's financial statements is to: A) increase total liabilities and decrease stockholders' equity. B) increase total expenses and decrease assets. C) increase total assets and increase stockholders' equity. D) decrease total assets and decrease stockholders' equity.

Q: On the payment date for a cash dividend, the company: A) debits Dividends and credits Dividends Payable for the amount of the dividend. B) debits Dividend Expense and credits Cash for the dividend amount. C) debits Dividends Payable and credits Cash for the dividend amount. D) establishes who will receive the dividend payment.

Q: On February 16, a company declares a 68 dividend to be paid on April 5. There are 950,000 shares of common stock issued and outstanding. The entry recorded by the company on April 5 includes a debit to: A) A debit to Dividends Payable and a credit to Cash for $680,000. B) A debit to Dividends and a credit to Dividends Payable for $646,000. C) A debit to Dividends Payable and a credit to Cash for $646,000. D) A debit to Dividends and a credit to Dividends Payable for $680,000.

Q: On the date of record for a dividend, the company: A) debits Dividends and credits Dividends Payable for the amount of the dividend. B) debits Dividend Expense and credits Cash for the dividend amount. C) debits Dividends Payable and credits Cash for the dividend amount. D) establishes who will receive the dividend payment.

Q: On February 16, a company declares a 34 dividend to be paid on April 5. There are 1,900,000 shares of common stock issued and outstanding. The entry recorded by the company on February 16 includes a debit to: A) Dividends Payable and a credit to Cash for $680,000. B) Dividends and a credit to Dividends Payable for $646,000. C) Dividends Payable and a credit to Cash for $646,000. D) Dividends and a credit to Dividends Payable for $680,000.

Q: On the declaration date, the company: A) debits Dividends and credits Dividends Payable for the amount of the dividend. B) debits Dividend Expense and credits Cash for the dividend amount. C) debits Dividends Payable and credits Cash for the dividend amount. D) establishes who will receive the dividend payment.

Q: A company declared a $0.80 per share cash dividend. The company has 100,000 shares authorized, 45,000 shares issued, and 42,000 shares of common stock outstanding. What is the journal entry to record the dividend declaration? A) Debit Dividends and credit Dividends Payable for $36,000 B) Debit Dividends and credit Dividends Payable for $33,600 C) Debit Dividends Payable and credit Cash for $36,000 D) Debit Dividends Payable and credit Cash for $80,000

Q: Jay-Cee Corporation had 20,000 shares of $4 par value common stock outstanding on January 1. On January 20, the company purchased 2,000 of its stock for $16 per share. On July 3, the company reissued 1,000 of the shares at $20 per share. Jay-Cee uses the cost method to account for its treasury stock. Assume the company paid a dividend of $5 per share on August 3. What is the total amount of the dividends that would be paid to the common stockholders? A) $95,000 B) $100,000 C) $90,000 D) $76,000

Q: Which of the following statements about when cash dividends can be paid is not correct? A) The Retained Earnings account must have an accumulated balance sufficient to cover the amount of the dividends to be paid. B) The Cash account must have a balance sufficient to pay the dividends. C) The board of directors must have declared the dividend before it can be paid. D) Loan covenants cannot restrict the payment of dividends.

Q: Typically, a profitable company that pays relatively high dividends: A) is an attractive investment for those seeking a steady income, like retired people. B) will reinvest more profit which can lead to smaller growth potential. C) will experience more growth in stock price over time. D) is a bad investment.

Q: Typically, a profitable company that pays little or no dividends: A) is a bad investment. B) will reinvest profits which can lead to greater growth potential. C) will experience relatively stable stock prices over time. D) will appeal to investors who desire distributions of profit.

Q: Choose the appropriate letter to match the term and the definition. Not all definitions will be used. Term: 1. _____ Convertible 2. _____ Carrying value 3. _____ Discount 4. _____ Callable 5. _____ Maturity 6. _____ Market interest rate 7. _____ Stated interest rate 8. _____ Premium Definition: A. A bond feature that changes the interest rate on the bond with market conditions. B. When a bond is issued for a price less than its face value. C. Also known as the face value or par value of a bond. D. A bond with the feature that allows creditors to exchange the bond for company stock. E. The interest rate printed on the bond certificate. F. A bond with the feature that lets creditors examine financial data and demand new loan conditions. G. The amount a company receives when it sells a bond; also known as issue price. H. When a bond is issued for a price greater than its face value. I. A bond with the feature that allows the borrowing company to pay off a bond whenever it wishes. J. Rate of interest that investors demand from a bond. K. The time at which the face value of a bond must be paid to the lender. L. Is multiplied by the market interest rate to calculate the (effective) interest expense on a bond.

Q: Choose the appropriate letter to match the term and the definition. Not all definitions will be used. Term: 1. _____ Current liabilities 2. _____ Effective interest method of amortization 3. _____ Straight-line method of amortization 4. _____ Times interest earned ratio 5. _____ Long-term liabilities 6. _____ Present value Definition: A. A bond feature that puts a creditor ahead of other creditors in order of payment. B. Current liabilities divided by current assets. C. These are liabilities that have to be paid in one year or less. D. Net income before taxes and interest expense divided by interest expense. E. Spreads a bond discount or premium evenly over the lifetime of the bond. F. The amount of all the liabilities currently on the balance sheet at the close of the period. G. Where interest expense is the market interest rate times the bond's carrying value. H. Net income after taxes and interest expense divided by interest expense. I. These are liabilities that do not have to be paid within the upcoming year. J. The ability to pay current obligations. K. Liquid assets divided by current liabilities. L. A calculation that determines what some future payments are worth today.

Q: Choose the appropriate letter to match the term and the definition. Not all definitions will be used. Term 1. _____ Accrued liability 2. _____ Loan covenant 3. _____ Issue price 4. _____ Face value 5. _____ Line of credit 6. _____ Public debt offering 7. _____ Security 8. _____ Contingent liability 9. _____ Debt-to-assets ratio Definition A. Bond features that allow the issuer to repay the loan early. B. A prearranged agreement that allows a company to borrow at will up to a limit. C. This item is reported as a contra asset account. D. The amount that the lender actually pays for a bond. E. The cost of issuing a bond. F. Debt features that, if violated, allow the lender to revise loan terms. G. The total amount of money that a company owes in debt. H. The amount a company must repay creditors when a bond matures. I. These are liabilities that have been incurred during the period but not yet paid. J. When a company borrows money by issuing bonds in the financial markets. K. A bond feature that allows a creditor to seize assets if debt is not properly repaid. L. This type of liability is uncertain; it exists only if some other condition occurs. M. Total liabilities divided by total assets.

Q: Consider the following information: Gil's Fish and Tackle, Inc. Balance Sheet At December 31, 2016 Assets Cash $ 22,200 Accounts Receivable (less allowance) 169,100 Inventories 68,300 Property, Plant and Equipment 102,800 Long-term Investments 30,000 Total Assets $392,400 Liabilities Accounts Payable $ 49,200 Current Portion of Long-Term Debt 68,800 Long-Term Notes Payable _100,000 Total Liabilities _218,000 Stockholders' Equity Contributed Capital 100,000 Retained Earnings _ 74,400 Total Stockholders Equity _174,400 Total Liabilities and Stockholders Equity $392,400 Gil's Fish and Tackle, Inc. Income Statement For the year ending December 31, 2016 Sales Revenue $2,765,000 Operating Expenses Salaries and Wages Expense 1,850,500 Operating and Admin. Expenses 286,700 Depreciation Expense 335,400 Operating Expenses 2,472,600 Operating Income 292,400 Other Expenses Interest Expense _ _ 17,000 Income Before Income Tax Expense 275,400 Income Tax Expense 103,800 Net Income $ 171,600 Required: Part a. Calculate the debt-to-assets ratio. Part b. Describe what the debt-to-assets ratio tells you and how to interpret it. Part c. Calculate the times interest earned. Part d. Comment on the results of your times interest earned analysis.

Q: Company A has liabilities of $6,773,000 and stockholders' equity of $3,647,000 at the end of the current year, and sales revenue of $9,800,000 and net income of $899,080 for the year. Company B has assets of $1,680,000 and stockholders' equity of $978,750 at the end of the current year, and sales revenue of $1,950,000 and net income of $351,000 for the year. Required: Part a. Calculate the debt-to-assets ratio for each company. Part b. Identify the company that has greater financing risk and explain why.

Q: On January 1, 2016, a company issues 3-year bonds with a face value of $50,000 and a stated interest rate of 7%. Because the market interest rate is 9%, the company receives $47,469 for the bond. Required: Part a. Determine the interest expense, the cash payment for interest, and the amount of the premium that will be amortized during the year ending December 31, 2016. Part b. Prepare the journal entry to record the first interest payment on December 31, 2016.

Q: On January 1, 2016, a company issues 3-year bonds with a face value of $50,000 and a stated interest rate of 7%. Because the market interest rate is 9%, the company receives $47,469 for the bond. Required: Fill in the table assuming the company uses effective-interest bond amortization. Period Ended Cash Paid Interest Expense Amortized Discount Bonds Payable Discount on Bonds Payable Carrying Value 01/01/16 12/31/16 12/31/17 12/31/18

Q: On January 1, 2016, a company issues 3-year bonds with a face value of $50,000 and a stated interest rate of 7%. Because the market interest rate is 5%, the company receives $52,723 for the bonds. Required: Part a. Determine the interest expense, the cash payment for interest, and the amount of the premium that will be amortized during the year ending December 31, 2016. Part b. Prepare the journal entry to record the first interest payment on December 31, 2016.

Q: On January 1, 2016, a company issues 3-year bonds with a face value of $50,000 and a stated interest rate of 7%. Because the market interest rate is 5%, the company receives $52,723 for the bonds. Required: Fill in the table assuming the company uses effective-interest bond amortization. Period Ended Cash Paid Interest Expense Amortized Premium Bonds Payable Premium on Bonds Payable Carrying Value 01/01/16 12/31/16 12/31/17 12/31/18

Q: Bonds with a stated interest rate of 9% and a face value totaling $600,000 were issued for $624,000 on January 1, 2016, when the market interest rate was 8%. The company uses effective-interest bond amortization. Required: Determine the carrying value of the bonds at December 31, 2017.

Q: On January 1, 2016, a company issues 3-year bonds with a face value of $200,000 and a stated interest rate of 8%. Because the market interest rate is higher than the stated interest rate, the company receives $194,000 for the bond. Required: Part a. Determine the amount of the discount that will be amortized during the year ending December 31, 2016. Part b. Prepare the journal entry to record the first interest payment on December 31, 2016.

Q: On January 1, 2016, a company issues 3-year bonds with a face value of $200,000 and a stated interest rate of 8%. Because the market interest rate is higher than the stated interest rate, the company receives $194,000 for the bond. Required: Fill in the table assuming the company uses the straight-line bond amortization. Period Ended Cash Paid Amortized Discount Interest Expense Bonds Payable Discount on Bonds Payable Carrying Value 01/01/16 12/31/16 12/31/17 12/31/18

Q: On January 1, 2016, a company issues 3-year bonds with a face value of $200,000 and a stated interest rate of 8%. Because the market interest rate is lower than the stated interest rate, the company receives $209,000 for the bond. The company uses straight-line bond amortization. Required: Part a. Determine the amount of the premium that will be amortized during the year ending December 31, 2016. Part b. Prepare the journal entry to record the first interest payment on December 31, 2016.

Q: On January 1, 2016, a company issues 3-year bonds with a face value of $200,000 and a stated interest rate of 8%. Because the market interest rate is lower than the stated interest rate, the company receives $209,000 for the bond. Required: Fill in the table assuming the company uses the straight-line bond amortization. Period Ended Cash Paid Amortized Premium Interest Expense Bonds Payable Premium on Bonds Payable Carrying Value 01/01/16 12/31/16 12/31/17 12/31/18

Q: On January 1, 2016, Effron Inc. sells $2 million of 8% bonds at face value with interest to be paid at the end of each year. Effron accrues interest at the end of each quarter during the year.

Q: Worthington Co. issues $500,000 of 5-year, 6% bonds on January 1, 2016. Required: Prepare the journal entry to record the issuance of the bonds under each of the following assumptions: Part a. The bonds are sold at 100. Part b. The bonds are sold at 102. Part c. The bonds are sold at 96.

Q: Leanley Co. issues $100,000 of 10-year, 10% bonds on January 1, 2016. Required: Determine the amounts (bonds payable, unamortized premium or discount, and bonds payable, net) that will be reported on a balance sheet prepared as of the date of issuance of January 1, 2016 under each of the following assumptions: Part a. The bonds are sold at 100. Part b. The bonds are sold at 104. Part c. The bonds are sold at 98.

Q: On December 31, 2015, Newco borrowed $100,000 from First National Bank, and signed a 12% note payable due in two years. Interest on the note is due at maturity. Required: Part a. Prepare the journal entry to record the borrowing transaction. Part b. Describe how the note should be reported on Newcos classified balance sheets at December 31, 2015 and December 31, 2016. Part c. Prepare the required adjusting entry on December 31, 2016. Part d. Prepare the journal entry to record the payment of the interest on December 31, 2017. Part e. Prepare the journal entry to record the payment of the note on December 31, 2017.

Q: On December 1, 2015, Newco borrowed $200,000 from First National Bank, and signed a 9% note payable due in one year. Interest on the note is due at maturity. Required: Part a. Prepare the journal entry to record the borrowing transaction. Part b. Prepare the required adjusting entry on December 31, 2015. Part c. Prepare the journal entry to record the payment of the interest on December 1, 2016. Part d. Prepare the journal entry to record the payment of the note on December 1, 2016.

Q: Wade Industries reported the following information in its accounting records on December 31, 2015: Gross salaries earned by employees (December 2931) $7,200 Income taxes withheld from employees (December 2931) 1,100 FICA taxes withheld from employees (December 2931) 420 Net payment to employees (made on December 31) $5,680 The employees were paid $5,680 on December 31, 2015, but the withholdings have not yet been remitted nor have the matching employer FICA contributions. Required: Part a. Compute the total payroll costs relating to the period from December 2931. (Assume $560 in total unemployment taxes.) Part b. Show the accounting equation effects and give the journal entries on December 31 to adjust for salaries and wages relating to December 2931, 2015. Part c. Show the accounting equation effects and give the journal entries on December 31 to adjust for payroll taxes relating to December 2931, 2105.

Q: Hubbard Street Dance Company sells subscriptions for its monthly dance performances. The company received annual subscription payments on November 15, 2015 for performances that will take place during 2016 in the amount of $120,000. The subscription payments will be earned equally throughout each month. Required: Part a. Describe how the subscription payments should be reported in the balance sheet and income statement on December 31, 2015 Part b. Describe how the subscription payments should be reported in the balance sheet and income statement on January 31, 2016. Part c. Prepare the journal entry for the receipt of annual subscription payments on November 15, 2015. Part d. Prepare the required adjusting entry for the subscription payments on January 31, 2016.

Q: A company issued $100,000 5-year, 7% bonds and received $101,137 in cash. The market rate of interest when the bonds were issued was 6.5%. What is the amount of interest expense to be recorded for the first annual interest period if the company uses simplified effective-interest amortization? A) $6,573.91 B) $7,000.00 C) $6,500.00 D) $7,079.59

Q: Which of the following statements about bonds payable net of a discount or premium is not correct? A) If a company records a discount or premium with the bonds payable in a single account called Bonds Payable, Net, it is using simplified effective-interest amortization. B) When bonds payable are accounted for net of a discount, the initial amount recorded in the Bonds Payable, Net account is the issue price of the bond. C) When simplified effective-interest amortization is used, the balance in the Bonds Payable, Net account will increase as the bond approaches the maturity date. D) If a company issued bonds at their face value, the balance of Bonds Payable, Net account will always be equal to the face value of the bonds as long as the bonds are outstanding.

Q: A company sells a bond with a face value of $10,000 and receives a premium of $800. Using simplified effective-interest amortization, what journal entry is used to record the issuance of the bonds? A) Debit Cash for $10,800 and credit Bonds Payable, Net for $10,800 B) Debit Cash for $10,800, credit Bonds Payable, Net for $10,000, and credit Premium on Bond Payable for $800 C) Debit Cash for $10,000, debit Interest Expense for $800, credit Bonds Payable, Net for $10,000, and credit Premium on Bonds Payable for $800 D) Debit Cash for $10,000, debit Interest Expense for $800, credit Bonds Payable for $10,000, and credit Premium on Bonds Payable for $800

Q: Which one of the following statements about amortization of discounts and premiums is not correct? A) Under straight-line amortization, when a bond is sold at a premium, the annual premium amortization is the total premium divided by the number of years until bond maturity. B) When a bond is sold at a discount, interest expense recorded using the effective-interest method is less than the interest paid on the bond. C) The effective-interest method of amortization is considered to be conceptually superior to straight-line amortization. D) When a bond discount is amortized using the effective-interest method, the promised interest payment is less than the interest expense, so the bond liability will increase as a result of the contra-liability account decreasing.