On January 1, 2016, Daley Co. issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6% .627
Present value of 1 for 8 periods at 8% .540
Present value of 1 for 16 periods at 3% .623
Present value of 1 for 16 periods at 4% .534
Present value of annuity for 8 periods at 6% 6.210
Present value of annuity for 8 periods at 8% 5.747
Present value of annuity for 16 periods at 3% 12.561
Present value of annuity for 16 periods at 4% 11.652
7. The present value of the principal is
8. The present value of the interest is
9. The term used for bonds that are unsecured as to principal is
a. junk bonds.
b. debenture bonds.
c. indebenture bonds.
d. callable bonds.
10. Best, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten
years from date of issue. If the bonds were issued at a premium, this indicates that
a. the effective yield or market rate of interest exceeded the stated (nominal) rate.
b. the nominal rate of interest exceeded the market rate.
c. the market and nominal rates coincided.
d. no necessary relationship exists between the two rates.
11. The rate of interest actually earned by bondholders is called the
a. stated rate.
b. yield rate.
c. effective rate.
d. effective, yield, or market rate.
12. In a corporate form of business organization, legal capital is best defined as
a. the amount of capital the state of incorporation allows the company to accumulate over its existence.
b. the par value of all capital stock issued.
c. the amount of capital the federal government allows a corporation to generate.
d. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission.
13. The cumulative feature of preferred stock
a. limits the amount of cumulative dividends to the par value of the preferred stock.
b. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.
c. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.
d. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.
Presented below is information related to Lyndon Corporation, question 14:
Common Stock, $1 par $4,300,000
Paid-in Capital in Excess of Par—Common Stock 550,000
Preferred 8 1/2% Stock, $50 par 2,000,000
Paid-in Capital in Excess of Par—Preferred Stock 400,000
Retained Earnings 1,500,000
Treasury Common Stock (at cost) 150,000
14. The total stockholders’ equity of Lyndon Corporation is
15. Starr Company has outstanding both common stock and nonparticipating, non-
cumulative preferred stock. The liquidation value of the preferred is equal to its
par value. The book value per share of the common stock is unaffected by
a. the declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value.
b. the declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value.
c. the payment of a previously declared cash dividend on the common stock.
d. a 2-for-1 split of the common stock.
16. Assume common stock is the only class of stock outstanding in the Bosch Corporation. Total stockholders’ equity divided by the number of common stock shares outstanding is called
a. book value per share.
b. par value per share.
c. stated value per share.
d. market value per share.
17. In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are
a. weighted by the number of days outstanding.
b. weighted by the number of months outstanding.
c. considered outstanding at the beginning of the year.
d. considered outstanding at the beginning of the earliest year reported.
18. What effect will the acquisition of treasury stock have on stockholders’ equity and earnings per share, respectively?
a. Decrease and no effect
b. Increase and no effect
c. Decrease and increase
d. Increase and decrease
19. Due to the importance of earnings per share information, it is required to be reported by all
Public Companies Nonpublic Companies
a. Yes Yes
b. Yes No
c. No No
d. No Yes
20. A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into common stock, if the effect of its inclusion is
a. Yes Yes
b. Yes No
c. No Yes
d. No No
1. On August 31, Able Co. partially refunded $180,000 of its outstanding 10% note payable made one year ago to Best Fededral Bank by paying $180,000 plus $18,000 interest, having obtained the $198,000 by using $52,400 cash and signing a new one-year $160,000 note discounted at 9% by the bank.
(1) Make the entry to record the partial refunding. Assume Able Co. makes reversing entries when appropriate.
(2) Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount.
2. On July 1, 2017, Wilcutts Co. issued 1,000 of its 8%, $1,000 bonds at 97 plus accrued interest. The bonds are dated April 1, 2017 and mature on April 1, 2027. Interest is payable semiannually on April 1 and October 1. What amount did Wilcutts receive from the bond issuance?
3. Weighted average shares outstanding.
On January 1, 2016, Patrick Corporation had 1,000,000 shares of common stock outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 600,000 of its own outstanding shares and retired them.
Compute the weighted average number of shares to be used in computing earnings per share for 2016.
4. Determine the price of a $300,000 bond issue under each of the following three independent assumptions:
|Assumption||Maturity||Interest Paid||Stated Interest Rate||Effective (or Market) Interest Rate|