exam 3part 1
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| A bond with a par value of $1,000 trading at 97 ½ sells for a premium. T or F | F
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| Interest on bonds is tax deductible. T or F | T
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| Morgan Company issues 10%, 20-year bonds with a par value of $760,000 that pay interest semiannually. The current market rate is 9%. The amount paid to the bondholders for each semiannual interest payment is: | $38,000
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| An annuity is a series of equal payments at equal time intervals. T or F | T
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| On Jan.1, a company issues bonds dated Jan. 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and Dec. 31. The market rate is 8% and the bonds are sold for $383,793. Journal: | Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000.
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| On January 1, 2013, Jacob issues $600,000 of 11%, 15-year bonds at a price of 102½. What is the journal entry to record the issuance of these bonds? | Debit Cash 615,000
Credit Bonds payable 600,000
Credit premium on bonds payable 15,000
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| A bond's par value is not necessarily the same as its market value. T or F | T
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| When the contract rate is above the market rate, a bond sells at a discount. T or F | F
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| Charger Company's most recent balance sheet reports total assets of $27,938,000, total liabilities of $15,738,000 and total equity of $12,200,000. The debt to equity ratio for the period is | 1.29
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| A bondholder that owns a $1,000, 10%, 10-year bond has: | The right to receive $1,000 at maturity
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| Can be exchanged for shares of the issuer's stock | convertible bond
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| Amount by which the bond price exceeds par value | premium on bond
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| The legal contract between the issuers and the bondholders | bond indenture
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| Maintains a separate asset account from which bondholders are paid at maturity | sinking fund bond
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| Has varying maturity dates for amounts owed | Serial bond
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| Backed by the issuers general credit standing | unsecured bond
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| evidence of the company debt | bond certificate
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| occurs when the contract rate is less than the market price | discount on bonds payable
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| cost- salvage value / Useful life in periods | Straight line method
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| Two Step Process: Depreciation Per Unit = | Cost - salvage value / Total units of production
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| Two step process Depreciation Expense= | Deprecation Per unit x Number of units produced in the period
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| straight-line rate = | 100% / useful life
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| double declining balance rate = | 2 x straight line rate
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| depreciation expense = | double declining balance rate x beginning period book value
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| Revenue expenditures characteristics | -does not materially incr. the plant assets life or capabilities
- recorded as an expense in the current period
-reported on income statement
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| Capital expenditures characteristics | - provide benefits for longer than the current period
- recorded as an addition to the asset account
- reported on the balance sheet
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| asset impairment def | - permanent decline in the fair value of an asset requires writing the asset down to its fair value
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| asset impairment is the process of | journalizing this decline
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| If cash > Bv, | record a gain
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| If cash < BV, | record a lose
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| If cash = BV, | no gain or loss
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| Recording a gain Or loss | Credit
debit
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| Recording cash received or paid | Debit
credit
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| removing accumulated depreciation | debit
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| removing the asset cost | credit
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| removing the asset cost | credit
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| Natural resource examples | oil, coal, gold
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| Natural res. is charged to | depletion expense over periods benefited
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| natural res. reported at cost | less accumulated depletion
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| plant assets tied into extracting may be required to | extract the natural resource
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| plant assets tied into extracting, assets are recorded in | a separate account and depreciated
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| intangible asssets are | -non-current without physical substance
- often provide exclusive rights or privileges
- usually acquired for operational use
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| cost determination and amortization record at cost | including purchase price, legal fees, and filing fees
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| Total asset turnover = | net sales/ average total assets
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| in an exchange | a trade in allowance is received on the old asset and the balance is paid in cash
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| accounting for the exchange of assets depends on | whether the transaction has commercial substance `
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| commercial substance implies | company's future cash flows will be altered
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