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.

Accounting Midterm Exam ACG-2011: Question 88

Which of the following statements is True?

	Bonds always increase return on equity.
	Bonds do not have to be repaid.
	Interest on bonds is not tax deductible.
	Dividends to stockholders are tax deductible.
	Interest on bonds is tax deductible.

Accounting Midterm Exam ACG-2011: Question 86

A company issues at par 9% bonds with a par value of $100,000 on April 1. The bonds pay interest semi-annually on January 1 and July 1. The cash received on July 1 by the bond holder(s) is:

	$6,000.
	$1,500.
	$7,500.
	$3,000.
→	$4,500.

$100,000 x .09 x 1/2 year = $4,500

Accounting Midterm Exam ACG-2011: Question 83

A bond sells at a discount when the:

	Contract rate is below the market rate.
	Bond has a short-term life.
	Bond pays interest only once a year.
	Contract rate is above the market rate.
	Contract rate is equal to the market rate.

Accounting Midterm Exam ACG-2011: Question 82

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment?

	Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136.
	Debit Notes Payable $11,250; credit Cash $11,250.
	Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136.
	Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386.
	Debit Notes Payable $32,136; credit Cash $32,136.

Interest expense = $125,000 x 9% = $11,250
Principal reduction = $32,136 - $11,250 = $20,886

Accounting Midterm Exam ACG-2011: Question 81

Bonds can be issued:

	At par.
	At a premium.
	At a discount.
	Between interest payment dates.
	All of these.

Accounting Midterm Exam ACG-2011: Question 77

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137.13. The present value of the note is (closest to):

	$94,013.13.
	$197,810.00.
	$75,137.13.
	$375,137.13.
	$300,000.00.

$75,137.13 x 3.9927 = $300,000

Accounting Midterm Exam ACG-2011: Question 76

Bonds that have interest coupons attached to their certificates, which the bondholders detach during each interest period and present to a bank for collection, are called:

	Callable bonds.
	Coupon bonds.
	Serial bonds.
	Convertible bonds.
	Registered bonds.

Accounting Midterm Exam ACG-2011: Question 74

Secured bonds:

	Have specific assets of the issuing company pledged as collateral.
	Are backed by the issuer's bank.
	Are subordinated to those of other unsecured liabilities.
	Are called debentures.
	Are the same as sinking fund bonds.

Accounting Midterm Exam ACG-2011: Question 73

All of the following statements regarding leases are True except:

	Capital leases do not transfer ownership of the asset under the lease, but operating leases often do.
	Capital leases create a long-term liability on the balance sheet, but operating leases do not.
	For a capital lease the lessee depreciates the asset acquired under the lease, but for an operating lease the lessee does not.
	For a capital lease the lessee records the leased item as its own asset.
	For an operating lease the lessee reports the lease payments as rental expense.

Accounting Midterm Exam ACG-2011: Question 72

A company has bonds outstanding with a par value of $100,000. The unamortized premium on these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss on this retirement is:

	$1,000 gain.
	$3,700 gain.
	$2,700 gain.
	$1,000 loss.
	$2,700 loss.

Par value	$100,000
Unamortized premium	2,700
Carrying value of bonds	$102,700
Retirement price	99,000
Gain on retirement	$   3,700

Accounting Midterm Exam ACG-2011: Question 68

A corporation sold 17,500 shares of its $10 par value common stock at a cash price of $15 per share. The entry to record this transaction would include:

	A debit to Paid-in Capital in Excess of Par Value, Common Stock for $87,500.
	A debit to Cash for $175,000.
	A credit to Common Stock for $262,500.
	A credit to Paid-in Capital in Excess of Par Value, Common Stock for $262,500.
→	A credit to Common Stock for $175,000.

Accounting Midterm Exam ACG-2011: Question 67

A company has 725 shares of $50 par value preferred stock outstanding, and the call price of its preferred stock is $64 per share. It also has 29,000 shares of common stock outstanding, and the total value of its stockholders' equity is $1,015,000. The company's book value per common share equals:

	$50.00.
	$32.59.
	$35.00.
	$34.15.
	$33.40.

($1,015,000 – (725 preferred shares × $64))/29,000 common shares = $33.40/common share

Accounting Midterm Exam ACG-2011: Question 64

The following data has been collected about a company's stockholders' equity accounts:
 

Common stock $10 par value 26,000 shares authorized and   13,000 shares issued, 1,600 shares in treasury	$130,000
Paid-in-capital in excess of par value, common stock	56,000
Retained earnings	31,000
Treasury stock	19,360

  

The treasury shares were all purchased at the same price.

The cost per share of the treasury stock is:

	$1.49.
	$11.10.
	$1.70.
	$12.10.
	$10.00.

$19,360/1,600 = $12.10, the cost per share of treasury stock.