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ACC 305 > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions

A

Asset

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2
Q

Cash and other assets a company expects to convert into cash, sell, or consume either in one year or in the operating cycle, whichever is longer

A

Current Asset

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3
Q

Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions

A

Liability

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4
Q

Obligations whose liquidation is reasonably expected to require use of existing resources properly classified as current assets, or the creation of other current liabilities

A

Current Liabilities

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5
Q

The residual interest in the assets of an entity that remains after deducting its liabilities

A

Equity

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6
Q

Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations

A

Revenue

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7
Q

Outflows or other using up of assets or incurrences of liabilities during a period from delivering goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations

A

Expense

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8
Q

Increases in equity from peripheral or incidental transactions of an entity

A

Gain

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9
Q

Decreases in equity arising from peripheral or incidental transactions of an entity

A

Loss

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10
Q

Items held for sale in the ordinary course of business, or goods to be used in the production of goods to be sold

A

Inventory

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11
Q

Assets of a durable nature that are used in operations, long-term in nature and possess physical substance

A

Property, plant, and equipment

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12
Q

Accounting process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset

A

Depreciation

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13
Q

Accounting process of allocating the cost of intangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset

A

Amortization

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14
Q

Assets that lack physical existence but are not financial instruments

A

Intangible Assets

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15
Q

Probably future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions

A

Liability

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16
Q

Obligations whose liquidation is reasonably expected to require use of existing resources properly classified as current assets, or the creation of other current liabilities

A

Current Liability

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17
Q

An existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur

A

Contingency

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18
Q

A list of each account and its balance; used to prove equality of debit and credit balances

A

Trial balances

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19
Q

Transferring amounts from journal to ledger

A

Posting

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20
Q

_____ are recorded in the period in which the performance obligation is satisfied

_____ are recognized in the period in which they are incurred or matched to revenues

A

Revenues

Expenses

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21
Q

Expenses paid in cash before they are used or consumed

A

Prepaid expenses

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22
Q

Cash received before the services are performed

A

Unearned Revenues

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23
Q

Revenues for services performed but not yet received in cash or recorded

A

Accrued Revenues

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24
Q

Expenses incurred but not yet paid in cash or recorded

A

Accrued Expenses

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25
Q

Deferrals are either ____ expenses or ____ revenues

A

Prepaid expenses or unearned revenues

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26
Q

Assets paid for and recorded before a company uses them

Ex. Insurance, rent, supplies, etc.

A

Prepaid Expenses

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27
Q

Receipt of cash before the services are performed is recorded as a liability called _____

Ex. Rent, airline tickets, tuition, subscriptions

A

Unearned Revenues

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28
Q

Accruals are either ____ or ____

A

Accrued revenues or accrued expenses

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29
Q

Revenues recorded for services performed but cash has yet to be received at the statement date are ___

Ex. Rent, interest, services performed

A

Accrued Revenues

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30
Q

Expenses incurred but not yet paid in cash or recorded

Ex. Rent, salaries, taxes, interest

A

Accrued Expenses

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31
Q

Shows the balance of all accounts, after adjusting entries, at the end of the accounting period

A

Adjusted Trial Balance

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32
Q

To reduce the balance of the nominal (temporary) accounts to zero in order to prepare the accounts for the next period’s transactions

To transfer all income statement account balances to the retained earnings account in owner’s equity

A

Closing Entries

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33
Q

Discontinued operations amounts are reported as ___

A

Net of tax

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34
Q

Reported after “Income from continuing operations” on Income Statement

A

Discontinued Operations

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35
Q

Elements of the balance sheet (3):

A
  • Assets
  • Liabilities
  • Equity
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36
Q

Classification in the Balance Sheet:

Assets (5):
Liabilities and Owner’s Equity (3):

A

Assets:

  • Current assets
  • Long-term investments
  • Property, plant, and equipment
  • Intangible assets
  • Other assets

Liabilities and Owners’ Equity:

  • Current liabilities
  • Long-term debt
  • Owners’ (stockholders’) equity
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37
Q

Short-term highly liquid investments that mature within three months or less

A

Cash equivalents

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38
Q

Noncurrent assets:

Bonds, common stock, or long-term notes

A

Securities

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39
Q

Noncurrent assets not currently used in operations

Ex. Land held for speculation

A

Tangible fixed assets

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40
Q

Noncurrent assets like sinking fund, pension fund, plant expansion fund, or cash surrender value of life insurance

A

Special funds

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41
Q

Tangible long-lived assets used in the regular operations of the business

Physical property such as land, buildings, machinery, furniture, tools, and wasting resources

A

Property, plant, and equipment

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42
Q

The income statement, the statement of stockholders’ equity, and the balance sheet - each present some information about the cash flows of an enterprise during a period

A

Statement of Cash Flows

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43
Q

Detailed summary of all the cash inflows and outflows, or the sources and uses of cash during the period

A

Statement of cash flows

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44
Q

Statement of cash flows content and format (3):

A
  • Operating
  • Investing
  • Financing
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45
Q

Cash effects of transactions that enter into the determination of net income

A

Operating

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46
Q

Making and collecting loans and acquiring and disposing of investments and property, plant, and equipment

A

Investing

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47
Q

Obtaining resources from owners and providing them with a return on their investment, and borrowing money from creditors and repaying the amounts borrowed

A

Financing

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48
Q

A ______ on a balance sheet reduces either an asset, liability, or owners’ equity account

Ex. Accumulated depreciation, discount on bonds payable

A

Contra account

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49
Q

An _____ increases either an asset, liability, or owners’ equity account

Ex. Premium on bonds payable

A

Adjunct account

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50
Q

Measures of the company’s short-term ability to pay its maturing obligations

A

Liquidity Ratios

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51
Q

Measures of how effectively the company uses its assets

A

Activity Ratios

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52
Q

Measures of the degree of success or failure of a given company or division for a given period of time

A

Profitability Ratios

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53
Q

Measures of the degree of protection for long-term creditors and investors

A

Coverage Ratios

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54
Q

Current Ratio formula:

A

Current assets/Current liabilities

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55
Q

Asset turnover formula:

A

Net sales/Average total assets

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56
Q

Profit margin on sales formula:

A

Net income/Net sales

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57
Q

Rate of return on assets formula:

A

Net income/Average total assets

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58
Q

Rate of return on common stock equity formula:

A

(Net income - Preferred dividends)/Average common stockholders’ equity

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59
Q

Earnings per share formula:

A

(Net Income - Preferred dividends) / Weighted shares outstanding

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60
Q

Price-earnings ratio formula:

A

Market price of stock/earnings per share

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61
Q

Payout ratio formula:

A

Cash dividends/Net income

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62
Q

Items held for sale in the ordinary course of business, or goods to be used in the production of goods to be sold

A

Inventories

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63
Q

Inventory accounts (3):

A
  • Raw materials
  • Work in process
  • Finished goods
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64
Q

Perpetual System:

Purchases of merchandise are debited to ____

A

Inventory

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65
Q

Perpetual System:

Freight-in is ____ to inventory. Purchase returns and allowances and purchase discounts are ____ to inventory

A

Debited

Credited

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66
Q

Perpetual System:

Cost of goods sold is ____ and Inventory is ___ for each sale

A

Debited

Credited

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67
Q

The ____ inventory system provides a continuous record of inventory and cost of goods sold

A

Perpetual Inventory System

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68
Q

Periodic System:

Purchases of merchandise are debited to ____

A

Purchases

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69
Q

Periodic System:

Ending inventory determined by ____

A

Physical count

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70
Q

Ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller

A

FOB Shipping Point

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71
Q

Ownership of the goods remains with the seller until the goods reach the buyer

A

FOB Destination

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72
Q

Goods out on consignment are the property of the ____

The consignee makes ____ to the inventory account for goods received

A

Consignor

No entry

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73
Q

Often referred to as a repurchase (or product financing) agreement, usually involves a transfer (sale) with either an implicit or explicit repurchase agreement

These arrangements are often described in practice as ____

A

Sales with Repurchase Agreement

“Parking Transactions”

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74
Q

Costs directly connected with bringing the goods to the buyer’s place of business and converting such goods to a salable condition

A

Product Costs

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75
Q

Generally selling, general, and administrative expenses

A

Period Costs

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76
Q
  • Used when handling a relatively small number of costly, easily distinguishable items
  • Matches actual costs against actual revenue
A

Specific Identification

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77
Q

Prices items in the inventory on the basis of the average cost of all similar goods available during the period

A

Average-Cost

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78
Q

Assumes goods are used in the order in which they are purchased

A

First-In, First-Out (FIFO)

79
Q

The cost of the total quantity sold or issued during the month comes from the most recent purchases

A

Last-In, First-Out (LIFO)

80
Q

Many companies use ___ for tax and external financial reporting purposes and ____ for internal reporting purposes

A

LIFO

FIFO, average cost

81
Q

Difference between the inventory method used for internal reporting purposes and LIFO

A

LIFO Reserve

82
Q

Increases and decreases in a pool are measured in terms of total dollar value, not physical quantity of goods

A

Dollar-Value LIFO

83
Q

Dollar-Value LIFO advantages (3):

A
  • Broader range of goods in pool
  • Permits replacement of goods that are similar
  • Helps protect LIFO layers from erosion
84
Q

Price Index for Current Year formula:

A

(Ending inventory for the period at current cost)/(Ending inventory for the period at Base-Year cost)

85
Q

Issues related to LIFO:

Advantages (3):
Disadvantages (4):

A

Adv.

  • Matching
  • Tax benefits/Improved cash flow
  • Future earnings hedge

Disadv.

  • Reduced earnings
  • Inventory understated
  • Physical flow
  • Involuntary liquidation/poor buying habits
86
Q

The estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation

A

Net Realizable Value (NRV)

87
Q

Measures the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use

A

Historical cost

88
Q

Cost of Land typically includes (5):

A
  • Purchase price
  • Closing costs (Title to the land, attorney’s fees, recording fees)
  • Costs of grading, filling, draining, and clearing
  • Assumption of any liens, mortgages, or encumbrances on the property
  • Additional land improvements that have an indefinite life
89
Q

Improvements with limited lives, such as private driveways, walks, fences, and parking lots, are recorded as ____ and depreciated

A

Land Improvements

90
Q

Land acquired and held for speculation is classified as an ___

A

Investment

91
Q

Land held by a real estate concern for resale should be classified as ___

A

Inventory

92
Q

Cost of buildings include (2):

A
  • Materials, labor, and overhead costs incurred during construction
  • Professional fees and building permits
93
Q

Cost of equipment includes (6):

A
  • Purchase price
  • Freight and handling charges
  • Insurance on the equipment while in transit
  • Cost of special foundations if required
  • Assembling and installation costs
  • Costs of conducting trial runs
94
Q

Self-Constructed Assets costs include (2):

A
  • Materials and direct labor

- Overhead (Assign no fixed overhead or assign a portion of all overhead to the construction process)

95
Q

Capitalization on interest considers three items:

A
  • Qualifying assets
  • Capitalization period
  • Amount to capitalize
96
Q

Interest costs during construction qualifying assets two types:

A
  • Assets under construction for a company’s own use

- Assets intended for sale or lease that are constructed or produced as discrete projects

97
Q

Capitalization on Interest period begins when (3):

And ends when (1):

A

Begins:

  • Expenditures for the asset have been made
  • Activities for readying the asset are in progress
  • Interest costs are being incurred

Ends:
-The asset is substantially complete and ready for use

98
Q

Interest cost during construction amount to capitalize

Capitalize the lesser of (2):

A
  • Actual interest costs

- Avoidable interest

99
Q

The amount of interest cost during the period that a company could theoretically avoid if it had not made expenditures for the asset

A

Avoidable interest

100
Q

Companies should record property, plant, and equipment at (2):

(Whichever is more clearly evident)

A

-The fair value of what they give up

or

-The fair value of the asset received

101
Q

Discount for prompt payment

A

Cash Discounts

102
Q

Assets purchased on long-term credit contracts at the present value of the consideration exchange

A

Deferred-Payment Contracts

103
Q

Allocate the total cost among the various assets on the basis of their relative fair market values

A

Lump-Sum Purchases

104
Q

The market price of the stock issued is a fair indiction of the cost of the property acquired

A

Issuance of Stock

105
Q

Exchanges of Nonmonetary Assets:

Companies should recognize immediately any gains or losses on the exchange when the transaction has ____

A

Commercial substance

106
Q

Exchange has _____ if the future cash flows change as a result of the transaction. That is, if the two parties’ economic positions change, the transaction has ___^

A

Commercial substance

107
Q

Companies recognize a ___ immediately whether the exchange has commercial substance or not

A

Loss

108
Q

If the exchange has commercial substance: Companies usually record the cost of a nonmonetary asset acquired in exchange for another nonmonetary asset at the _____, and immediately recognizes a gain

A

Fair value of the asset given up

109
Q

General formula for gain recognition on a transaction that lacks commercial substance:

A

((Cash Received (Boot))/(Cash Received (Boot) + Fair Value of Other Assets Received) x Total Gain = Recognized Gain

110
Q

In general, costs incurred to achieve greater future benefits should be ____, whereas expenditures that simply maintain a given level of services should be ____.

A

Capitalized

Expensed

111
Q

In order to capitalize costs, one of three conditions must be present:

A
  1. Useful life must be increased
  2. Quantity of units produced must be increased
  3. Quality of units produced must be enhanced
112
Q

Costs subsequent to acquisition

Major types of expenditures (4):

A
  • Additions
  • Improvements and replacements
  • Rearrangement and reinstallation
  • Repairs
113
Q

Increase or extension of existing assets

A

Additions

114
Q

Substitution of an improved asset for an existing one

A

Improvements and replacements

115
Q

Movement of assets from one location to another

A

Rearrangement and reinstallation

116
Q

Expenditures that maintain assets in condition for operations

A

Repairs

117
Q

Accounting process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset

A

Depreciation

118
Q

Allocating costs of long-lived assets:

Fixed assets =
Intangibles =
Natural resources =

A

Fixed assets = Depreciation expense
Intangibles = Amortization expense
Natural Resources = Depletion expense

119
Q

Special Depreciation Method:

Used when the assets are similar in nature and have approximately the same useful lives

A

Group method

120
Q

Special Depreciation Method:

Used when the assets are dissimilar and have different lives

A

Composite Method

121
Q

Special Depreciation Method:

The choice of method depends on the ______

The computation for group or composite method is essentially the same: find an ___ and ______

A

Nature of the assets involved

Find and average and depreciate on that basis

122
Q

The process of allocating the cost of natural resources

A

Depletion

123
Q

When the carrying amount of an asset is not recoverable, a company records a write-off referred to as an ____

A

Impairment

124
Q

An impairment has occurred if:

The sum of the expected future net cash flows from the long-lived asset is ___ than the carrying amount of the asset

A

Less

125
Q

The impairment loss is the amount by which the carrying amount of the asset ____ the fair value of the asset

A

Exceeds

126
Q

The market value or the present value of expected future net cash flows

A

Fair value

127
Q

After recording an impairment loss, the reduced carrying amount becomes its new ____

A

Cost basis

128
Q

Intangible asset characteristics (2):

A
  1. Lack physical existence

2. Not financial instruments

129
Q

Intangibles are normally classified as _____

A

Long-term assets

130
Q

Common types of intangibles:

A 
Patents
Copyrights
Franchises or licenses
Trademarks or trade names
Goodwill
131
Q

Intangible valuation:

Recorded at ___

Typical costs include (3):

A

Cost

  • Purchase Price
  • Legal fees
  • Other incidental expenses
132
Q

Intangible asset valuation:

Internally created intangibles are recorded at ___, are generally ____, and only capitalize _____ incurred in developing intangible, such as ___ costs.

A

Cost

Expensed

Direct Costs

Legal costs

133
Q

Limited-life Intangible asset amortization:

Amortize to expense over _____

Credit ___ account or ______

A

Useful life

Asset account or accumulated amortization

134
Q

Limited-life intangibles:

Useful life should reflect the periods over which the asset will contribute to _____

Amortization should be ___ less ___

A

Cash flows

Cost less residual value

135
Q

Indefinite-Life intangibles amortization:

No foreseeable limit on time the asset is expected to _____

Must test indefinite-life intangibles for impairment at least ____

No _____

A

Provide cash flows

Annually

No amortization

136
Q

Represents the future economic benefits arising from the other assets acquired in a business combination that are not individually identified and separately recognized

A

Goodwill

137
Q

Goodwill is only recorded when an ______

A

Entire business is purchased

138
Q

Goodwill is measured as the ______ over the _______

A

Excess of cost of the purchase over the FMV of the identifiable net assets purchased

139
Q

____ created goodwill should not be capitalized

A

Internally

140
Q

Goodwill considered to have an ____

A

Indefinite life

141
Q

Is goodwill amortized?

A

No

142
Q

Only adjust carrying value when goodwill is ___

A

Impaired

143
Q

Purchase price less than the fair value of net assets acquired

A

Bargain Purchase

144
Q

Bargain purchase amount is recorded as a __ by the purchaser

A

Gain

145
Q

Impairment of Goodwill:

Two Step Process:

Step 1: If fair value is ___ than the carrying amount of the net assets (including goodwill), then perform a second step to determine possible impairment

Step 2: Determine the ___ value of the goodwill (implied value of goodwill) and compare to ___ amount

A

Less

Fair value

Carrying amount

146
Q

Not in themselves intangible assets

A

Research and Development Costs (R&D)

147
Q

R&D costs frequently results in something that a company ______ such as new product, process, idea, formula, composition, or literary work

A

Patents or copyrights

148
Q

Companies must ____ all research and development costs when incurred

A

Expense

149
Q

Balances owed to others for goods, supplies, or services purchased on open account

A

Accounts Payable

150
Q

Written promises to pay a certain sum of money on a specified future date

A

Notes Payable

151
Q

Discount on notes payable is a ____ account to notes payable, and therefore is ___ from notes payable on the balance sheet

A

Contra

Subtracted

152
Q

Discount on notes payable:

Represents the cost of _____, debited to _____ expense over the ___ of the note, and represents ____ expense shareable to ___ periods

A

Borrowing

Interest expense

Life

Interest

Future

153
Q

Amount owed by a corporation to its stockholders as a result of board of directors’ authorization

A

Dividends Payable

154
Q

Dividends payable are generally paid within _____, undeclared dividends on cumulative preferred stock not recognized as _____, and dividends payable in the form of additional shares of stock are reported in ______

A

3 months

Liability

Stockholders’ equity

155
Q

Received from customers and employees to guarantee performance of a contract or service or as guarantees to cover payment of expected future obligations. May be classified as current or long-term liabilities

A

Returnable cash deposits

156
Q

Payments received before delivering goods or rendering services

A

Unearned Revenues

157
Q

Retailers must collect sales taxes from customers on transfers of tangible personal property and on certain services and then remit to the proper governmental authority

A

Sales tax payable

158
Q

Many companies do not segregate the sales tax and the amount of the sale at the time of sale. Instead, the company credits both amounts in total in the _____ account

A

Sales Revenue

159
Q

Taxes payable are a ____ liability, corporations must make ____ tax payments, and differences between ___ income and ___ income sometimes occur

A

Current liability

Periodic tax payments

Taxable income

Accounting income

160
Q

Amounts owed to employees for salaries or wages are reported as a current liability

A

Employee-Related liabilities

161
Q

Current liabilities related to employee compensation may include (3):

A
  • Payroll deductions
  • Compensated absences
  • Bonuses
162
Q

Most common types of payroll deductions are (4):

A
  • Taxes
  • Insurance premiums
  • Employee savings
  • Union dues
163
Q

Paid absences for vacation, illness, and holidays

A

Compensated Absences

164
Q

Accrue a liability for compensated absences if all the following conditions exist:

The employer’s obligation is attributable to employees’ services ______, the obligation relates to rights that ______, payment of the compensation is ____, and the amount can be _____.

A

Already rendered

Vest or accumulate

Probable

Reasonably estimated

165
Q

Payments to certain or all employees in addition to their regular salaries or wages

A

Bonus Agreements

166
Q

Bonuses paid are an ____ expense, unpaid bonuses should be reported as a _____

A

Operating

Current liability

167
Q

Portion of bonds, mortgage notes, and other long-term indebtedness that matures within the next fiscal year

A

Current Maturities of Long-Term Debt

168
Q

Exclude long-term debts maturing currently if they are to be (3):

A
  • Retired by assets accumulated that have not been shown as current assets
  • Refinanced, or retired from the proceeds of a new debt issue
  • Converted into capital stock
169
Q

Short-term obligations expected to be refinanced:

Exclude from current liabilities if both of the following conditions are met:

  1. Must ______ the obligation on a long-term basis
  2. Must ______ to refinance (Actual refinancing or enter into a financing agreement)
A

Intend to refinance

Demonstrate an ability

170
Q

An existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur

A

Contingencies

171
Q

Typical gain contingencies are (4):

A
  1. Possible receipts of monies from gifts, donations, asset sales, etc.
  2. Possible refunds from the government in tax disputes
  3. Pending court cases with a probable favorable outcome
  4. Tax loss carryforwards
172
Q

Gain contingencies are ______, disclosed only if probability of _____

A

Not recorded

Receipt is high

173
Q

FASB uses three areas of probability of loss contingencies:

A
  • Probably
  • Reasonably probable
  • Remote
174
Q

Loss contingencies:

Probability to Accounting:

Probable =
Reasonably probable =
Remote =

A

Probable = Accrue, Footnote

Reasonably probably = Footnote

Remote = Ignore

175
Q

Common loss contingencies (4):

A
  • Litigation, claims, and assessments
  • Guarantee and warranty costs
  • Premiums and coupons
  • Environmental liabilities
176
Q

Companies must consider the following factors, in determining whether to record a liability with respect to pending or threatened litigation and actual or possible claims and assessments:

_____ in which the action occurred, ____ of an unfavorable outcome, ability to make a ____ of the loss

A

Time period

Probability

Reasonable estimate

177
Q

Warranty that the product meets agreed-upon specifications in the contract at the time the product is sold

A

Assurance-Type Warranty

178
Q

Assurance-Type Warranty should be expensed in the period the ______ and should record a _____

A

Goods are provided or services performed

Warranty liability

179
Q

Warranty that provides an additional service beyond the assurance-type warranty

A

Service-Type Warranty

180
Q

Service-Type Warranty is recorded as a ______, usually recorded in an _____ account, and recognize revenue on a ____ basis over the period the service-type warranty is in effect

A

Separate performance obligation

Unearned Warranty Revenue account

Straight-line basis

181
Q

Companies should charge the costs of premiums and coupons to expense in the period of the sale that benefits from the plan

A

Consideration Payable

182
Q

Consideration Payable:

Company estimates the number of _____ that customers will present for redemption and the company charges the cost of premium offers to _____ and credits _____

A

Outstanding premium offers

Premium Expense

Premium Liability

183
Q

A company must recognize an ______ when it has an existing legal obligation associated with the retirement of a long-lived asset and when it can reasonably estimate the amount of the liability

A

Asset Retirement Obligation (ARO)

184
Q

Asset Retirement Obligation (ARO) should be recorded as ___ value

A

Fair

185
Q

Self-Insurance is not insurance, but ____

A

Risk assumption

186
Q

Long-term debt is not payable within ____ or the operating cycle of the company, whichever is ____

A

Within a year

Longer

187
Q

Issuing bonds

Bond contract known as a _____

Represents a promise to pay (2):

A

Bond indenture

  1. Sum of money at designated maturity date, plus
  2. Periodic interest at a specified rate on the maturity amount (face value)
188
Q

Bonds interest payments usually made _____

A

Semiannually

189
Q

Investment community values a bond at the present value of its expected future cash flows, which consist of ___ and ___

A

Interest and principal

190
Q

How do you calculate the amount of interest that is actually paid to the bondholder each period?

A

Stated Rate x Face Value of the Bond

191
Q

How do you calculate the amount of interest that is actually recorded as interest expense by the issuer of the bonds?

A

Market Rate x Carrying Value of the Bond

192
Q

When companies issue bonds on other than the interest payment dates, buyers will pay the seller the interest accrued from the last _____ to the date of ___. On the next semiannual interest payment date, purchasers will receive the _____ payment

A

Interest payment date to the date of issue

Full six months’ interest

193
Q

Produces a periodic interest expense equal to a constant percentage of the carrying value of the bonds

A

Effective-Interest Method

ACC 305 (3 decks)

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