Record Each Year-End Fair Value Adjustment Exercise 15-11

Ticker Services began operations in 2009 and maintains long-term investments in available-for-sale securities. The year-end cost and fair values for its portfolio of these investments follow. Cost Fair Value December 31, 2009 $ 384,210 $ 372,684 December 31, 2010 437,999 464,279 December 31, 2011 595,679 704,688 December 31, 2012 899,475 800,533 Prepare journal entries to record each year-end fair value adjustment for these securities. (Omit the "$" sign in your response.)

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Accounting Midterm Exam ACG-2011: Question 104

Adidas issued 10-year, 11% bonds with a par value of $300,000. Interest is paid semiannually. The market rate on the issue date was 10%. Adidas received $318,696 in cash proceeds. Which of the following statements is True?

	Adidas must pay $300,000 at maturity and no interest payments.
	Adidas must pay $318,696 at maturity plus 20 interest payments of $16,500 each.
	Adidas must pay $300,000 at maturity plus 20 interest payments of $15,000 each.
	Adidas must pay $300,000 at maturity plus 20 interest payments of $16,500 each.
	Adidas must pay $318,696 at maturity and no interest payments.

Accounting Midterm Exam ACG-2011: Question 103

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 95. What is the gain or loss on this retirement?

	$5,000 gain.
	$5,000 loss.
	$0 gain or loss.
→	$500 gain.
	$500 loss.

Par value	$100,000
Unamortized discount	4,500
Carrying value of bonds	$ 95,500
Retirement price	95,000
Gain on retirement	$   500

Accounting Midterm Exam ACG-2011: Question 96

A company must repay the bank a single payment of $21,000 cash in 2 years for a loan it entered into. The loan is at 10% interest compounded annually. The present value factor for 2 years at 10% is 0.8264. The present value of the loan (closest to) is:

	$17,354.
	$25,200.
	$16,800.
	$21,000.
	$18,900.

$21,000 × 0.8264 = $17,354

Accounting Midterm Exam ACG-2011: Question 92

A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity for 7 years at 9% is 5.0330. The present value of the loan is:

	$45,297.
	$5,033.
	$63,000.
	$9,000.
	$57,330.

$9,000 x 5.0330= $45,297

Accounting Midterm Exam ACG-2011: Question 90

Amortizing a bond discount:

	Allocates a portion of the total discount to interest expense each interest period.
	Decreases the Bonds Payable account.
	Decreases interest expense each period.
	Increases cash flows from the bond.
	Increases the market value of the Bonds Payable.

Accounting Midterm Exam ACG-2011: Question 89

Pitt Corporation's most recent balance sheet reports total assets of $35,000,000 and total liabilities of $17,500,000. Management is considering issuing $5,000,000 of par value bonds (at par) with a maturity date of ten years and a contract rate of 7%. What effect, if any, would issuing the bonds have on the company's debt-to-equity ratio?

	Issuing the bonds would cause the firm's debt-to-equity ratio to improve from .5 to .8.
	Issuing the bonds would cause the firm's debt-to-equity ratio to improve from 1.0 to 1.3.
→	Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from 1.0 to 1.3.
	Issuing the bonds would cause the firm's debt-to-equity ratio to remain unchanged.
	Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from .5 to .8.

Current Situation:	Total Assets = Total Liabilities + Stockholders' Equity
	35,000,000    =   17,500,000    +   17,500,000
	Debt-to-equity ratio = 17.5 / 17.5 or 1.0.
If debt is issued:	Total Assets = Total Liabilities + Stockholders' Equity
	40,000,000   =   22,500,000    +  17,500,000
	Debt-to-equity ratio = 22.5 / 17.5 or 1.3.