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Managerial Accounting > Chapter 14 > Flashcards

Chapter 14 Flashcards

1
Q

_______is greater than ______ to a be a premium?

A

contract rate…..market rate

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2
Q

How do you determine the premium?

A

Amount recieved - face amount

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3
Q

What is the opposite of a premium?

A

Discount

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4
Q

How are premiums ammortized?

A

Semi-annually

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5
Q

A company issues $6,000,000 bonds, 10%, 5 year semi annual interest of $300,000, receiving cash of $6,341,825. Journalize the bond issuance.

A

Debit: cash $6,431,825
Credit: Premium on Bonds payable–$341,825
Bonds Payable $6,000,000

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6
Q

What is a benefit of Premiums?

A

Higher interest and yield

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7
Q

What is a present value of an annuity?

A

It is the sum of the present values of each cash receipt.

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8
Q

When a corporation issues bonds the investors are willing to pay depending on what?

A
  • The face amount of the bonds, which is the amount due at the maturity date.
  • The periodic interest to be paid on the bonds.
  • The market rate of interest.
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9
Q

The selling price of a bond is the present value. using the current market rate of interest of the following:

A
  • The face amount of the bonds due at the maturity date

- The period interes is to be paid on the bonds.

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10
Q

Entry for annual payments

A

Debit to Interest Expense & Notes Payable

Credit to Cash

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11
Q

Entry to issue an installment note

A

Debit to Cash

Credit to Notes Payable

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12
Q

When is the principal paid in full?

A

At the end of the note’s term

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13
Q

How is the principal portion of an installment calculated?

A

Difference of the total cash paid- interest

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14
Q

How is the interest portion of an installment calculated?

A

Multiplying the interst rate by the book value

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15
Q

On the first day of the fiscal year, a company issues $65,000, 10%, six year instsllment. Annual payments if $14,924. The first note payment consists of $6,500 and interest of $8424 of principle repayment. a) Journalize the issuance of the note and b) first anual payment

A

a) Debit –> Cash- $65,000 ; Credit–> Notes Payable- $65,000
b) Debit–> Interest Expense- $6,500 & Notes Payable - $8,424; Credit –> Cash- $14,924

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16
Q

What is the future value?

A

The estimated worth in the future of an amount of cash on hand today invested at a fixed rate of interest.

17
Q

What is present value?

A

The estimated worth today of an amount of cash to be received (or paid) in the future.

18
Q

What is an annuity?

A

A series of equal cash flow at fixed intervals.

19
Q

A $150,000 bond issue on which there is an unamortized premium of $20,000 is redeemed for $145,000. What is the gain on Redemption of Bonds?

A

$25,000

20
Q

A $90,000 bond issue on which there is an unamortized discount of $30,000 is redeemed for $75,000. What is the loss on the Redemption of Bonds?

A

$15,000

21
Q

A bond was issued for $190,000 of 30 years, 10% callable on September 25. What is the face amount of the bond payable?

A

$190,000

22
Q

A bond was issued for $200,000 of 20 years, 10% callable on August, 2018 with interest payable on August 27 and November 25. What is the interest expense?

A

$10,000

23
Q

Wood Pecker Corp. have a $100,000 Callable Bond. They called the bond at the rate of 140. Journalize the entry of the rate of the bond.

A

Debit, Loss on Redemption of Bond $40,000

24
Q

Wood Pecker Corp. have a $100,000 Callable Bond. They called the bond at the rate of 70. Journalize the entry of the rate of the bond.

A

Credit, Gain on Redemption of Bond $30,000

25
Q

Bond

A

A Form of and interest-bearing note

26
Q

True or False?

A Bond requires periodic interest payments with the face amount to be repaid at the maturity date

A

True

27
Q

Earnings Per Share

A

Measures the income earned by each share of common stock

28
Q

Determine the earnings per share of common stock, assuming income before bond interest & income tax is $1,000,000
Income Tax 40%
issue 8%bond at face value $5,000,000
issue Common Stock, $25 par $5,000,000

A

$ .90

29
Q

Determine the earnings per share of common stock, assuming income before bond interest & income Tax is $3,000,000
Income Tax 40%
Bonds Payable 10% $10,000,000
Preferred $1 Stock, $10 par $10,000,000
Common Stock $25 par $10,000,000

A

$ .50

30
Q

Determine the earnings per share of common stock, assuming income before bond interest & Income Tax 40%
Bonds Payable 10% $10,000,000
preferred $1 stock, $10 Par $10,000,000
Common stock $25 par $10,000,000

A

$ 3.50

Managerial Accounting (6 decks)

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