Final Practice

Final Practice - Premium on bonds payable is a considered...

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Premium on bonds payable is a considered to be a reduction in the cost of borrowing . If market interest rate is greater than the contractual interest rate, bonds will sell at a discount The market interest rate is often called the effective rate If bonds were issued at a premium then the contractual interest rate was greater than the market interest rate. Notes Payable is not an accrued liability. If a corporation pays taxes on its income, then stockholders will have to pay taxes on the dividends received from that corporation. ▪A proxy is a legal document that instructs a stockholder’s agent how to vote shares of stock for the stockholder. The par value of common stock does not have to equal its market value on the date the stock is issued. FALSE A 3 for 1 common stock split will increase total stockholder’s equity but reduce the par or stated value per share of common stock. Common stock ; one class ▪ Paid in capital in excess of stated value is credited when no par stock does not have a stated value. ▪ Authorized shares have the largest # of common shares. Treasury stock is corporations own stock which has been reacquired but not canceled. Dividends in arrears on cumulative preferred stock must be paid before common stockholders can receive a dividend. ▪ On Jan. 1, Co. purchased as an investment a $1000, 8% bond for $1020, Interest; Jan.1 & July 1, entry to record interest accrual Dec 31? DR Interest Receivable 40 CR Interest Revenue 40 Under the equity method for long term investments in common stock, when a dividend is received from the investee company, the stock investments account is decreased. ▪ Equity method the stock investments account is increased when the investee company reports net income. Co. acquired 15% of Dow Co. common stock fore $400,000. Dow Co. reported net income of $75,000 and paid $25,000 cash dividends during the year. Balance of Stock Investments on books of Co. at the end of the year: $400,000 ▪ For long term debt investments any bond premium or discount is amortized to interest revenue over the remaining term of the bonds. ▪ External reporting : both income statement & cash flows. ▪ The payment of interest on bonds payable is classified as a cash outflow from operating activities. ▪ FALSE All major financing and investing activities affect cash. ▪ Cash provided by operating activities fails to take into account that a company must invest in new fixed assets just to maintain its current level of operations. ▪ Income Tax Expense: $30,000 Income Tax Payable increased by $3000, cash paid for income taxes ; $27,000 ▪ Financing activities include obtaining of cash from issuing debt and repaying amounts borrowed. ▪ Statement of cash flows should help investors and creditors assess entity’s ability to pay dividends, reasons for the difference between net income and net cash provided by operating activities, cash investing & financing transactions
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This note was uploaded on 04/29/2011 for the course ECON 101 taught by Professor Gottlieb during the Spring '08 term at Rutgers.

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Final Practice - Premium on bonds payable is a considered...

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