Exam 3 Study Guide From AJ

Exam 3 Study Guide From AJ - Fall 2010 Acc 221 Exam#3...

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Fall 2010 Acc 221 – Exam #3 – Review Guide Exam Questions #: 1 & 2 Calculating the Selling Price of a Bond – Recording the Sale of a Bond ANNUALLY Stated interest rate only used once – multiply stated interest rate * face amount = annual cash payment Selling price of a bond: present value ( periods * effective interest rate ) + annual cash payment ( periods * effective interest rate) SEMI ANNUALLY Half stated interest rate * face amount = semiannual cash interest payment Selling price of a bond: present value ( half effective interest rate * 2 number of years) + Semiannual cash payment ( half interest rate * 2 number of years) If stated interest rate = effective interest rate then selling price is face value PAR - o Receive bond : debit cash, credit bond payable o Yearly/semi payments: interest expense debit , cash credit o Maturity: bond payable debit , cash credit Discount – sold below but higher interest rate o Receive bond: debit cash, credit bond payable o Yearly/semi payments: debit interest expense , credit cash , credit bond payable o Maturity: debit bond payable, credit cash Premium- higher value , lower interest rate o Receive bond: debit cash, credit bond liability o Yearly/semi payments: debit bond payable, debit interest expense, credit cash Exam Questions #: 3 Journal Entries and Bond Amortization Schedule for Discount Bonds If a bond is sold at a discount then its liability increases every year and it is positive

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