Essential Accounting Principles: Bonds, Equity, and Statements

Core Financial Accounting Concepts

Bond Interest Payment: Straight-Line Amortization

Consider $200,000 of 6%, 25-year bonds sold for $190,000 on January 1. These bonds require semiannual interest payments on June 30 and December 31. What is the entry to record the June 30 interest payment using the straight-line method?

Debit Interest Expense $6,200; Credit Discount on Bonds Payable, $200; Credit Cash, $6,000.

Effective-Interest Method: Interest Expense Debit

On January 1, Thompson Corporation issued $3,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $3,216,288, and the market rate of interest was 12%. Using the effective-interest method, what is the debit entry to Interest Expense on the first interest date?

$385,955.

Unamortized Bond Discount: Effective-Interest Method

On January 1, Weatherholt Inc. issued $4,000,000, 9% bonds for $3,756,000. The market rate of interest is 10%, and interest is payable annually on December 31. If the effective-interest method is used for amortizing bond discount, what unamortized bond discount should Weatherholt report at the end of the first year?

$228,400.

Disadvantage of a Corporate Structure

What is a significant disadvantage of a corporation?

Double taxation.

Common Stock Issuance: Amount Credited

Illusions Corp. issues 10,000 shares of $10 par common stock for $12 per share. What amount is credited to Common Stock?

$100,000.

Dividend Dates Requiring Journal Entries

Which of the following dates related to dividends typically requires a journal entry?

Date of declaration.

Cash Dividends for Common Stockholders

Stonework Company has 500 shares of $50, 5% cumulative preferred stock and 1,000 shares of $10 par common stock outstanding. If Stonework paid $3,000 in cash dividends, including one-year dividends in arrears to preferred stockholders, how much did common stockholders receive?

$500.

Effect of Stock Dividend Declaration

What is the effect of declaring a stock dividend?

Decreases retained earnings.

Understanding Treasury Stock Characteristics

Which statement is true regarding treasury stock?

Treasury Stock has a debit balance.

Major Sections of Stockholders' Equity

What are the major parts of the Stockholders' Equity section of the Balance Sheet?

Paid-In Capital and Retained Earnings.

Calculating Return on Equity (ROE)

Calculate the return on equity if sales are $500,000, net income is $42,000, beginning common stockholders' equity is $86,000, and ending common stockholders' equity is $94,000.

46.7%.

Calculating Earnings Per Share (EPS)

Plymouth Corporation's net income for the current year is $360,000. The corporation had outstanding 6,000 shares of 10%, $100 par value nonconvertible preferred stock and 25,000 shares of $10 par value common stock. No shares were issued or retired during the year. What is the earnings per share of the company?

$12.00.

Role of an Auditor in Financial Reporting

Which of the following statements is not true regarding financial reporting?

The auditor prepares the financial statements.