- Asian Trading Company issued 20-year bonds having a coupon rate of 15%. At any time after the third year, the company may notify up to 10% of the bondholders per year that their bonds could be redeemed. Which term below best described the bonds issued by Asian Trading Company? (Points :2) registered callable serial debentures
2. If the market rate of the interest for bonds is less than the rate printed on the face of the bonds, then the bonds will be issued at (Points :2)
a discount
a premium
their face value
their face value less the interest rate printed on the face of the bonds
3. The term "retained earnings" is (Points :2)
representative of the cash that the corporation has available to pay dividends as of the balance sheet date
found among the assets on the balance sheet of any profitable corporation always as large or larger than Cash on the balance sheet an account
balance found on the balance sheet of a corporation that has
represents accumulated earnings of the corporation which could be used to pay dividends at some future date.
4. Blue Waters Sailing had a retained earnings account balance on January 1, 2007 of $120,000. During 2007 the firm had net income of $72,000 and paid a $36,000 cash dividend. What is the December 31, 2007 retained earnings balance? (Points :2) $122,000 $156,000 $196,000 $212,000 $228,000
5. After calling 3,000 of its $1,000 face value bonds, Donovan Enterprises reported a loss from the event of $63,000. The book value of the bonds at the call date was $1,477,500 and the market value was $1,515,000. What total amount was paid by the company to call the bonds? (Points :2) $1,452,000 $1,489,500 $1,503,000 $1,540,500
6. Styles Ventures sold a $50,000 issue of bonds. The coupon rate was 10% and the market rate was 8%. The present value of a $1 annuity for ten periods at 8% is $6.7101. The present value of $1 for ten periods at 8% is $0.4632. The selling price of these bonds should be (Points :2) $47,740 $50,000 $52,830 $56,710
7. Winters Company has announced that it will distribute a 15% common stock dividend on its $10 par value common stock that is currently selling for $75 per share. Upon receiving the new shares, a common stockholder will have increased his/her ownership value by (Points :2)
zero
15% of the par value of shares owned before the stock dividend
15% of the market value of the shares owned before the stock dividend 15% of the difference between par value and market value of the shares owned before the stock dividend
8. If the market rate of the interest for bonds is less than the rate printed on the face of the bonds, then the bonds will be issued at (Points :2) a discount a premium their face value their face value less the interest rate printed on the face of the bonds
9. Fletcher Company commenced business on January 1, 2007 but has never declared or paid any dividends. The following are account balances after closing the books at December 31, 2009: Cash $18,000 Common stock, $1 par 1,000 Paid-in capital in excess of par value 49,000 Preferred stock, $100 par, 10%, cumulative 50,000 Retained earnings 75,000 Net income during 2009 totaled $30,000 and the Board of Directors wishes to distribute a total of $15,000 in cash dividends. The common stockholders will receive what amount per share? (Points :2) $15 $11 $ 3 $ 0
10. Which of the following is a FALSE statement? (Points :2)
common stock can be issued at a price greater than its par value
treasury stock can be sold at a price less than its cost
the claims of owners are honored before those of creditors
retained earnings is profit reinvested in a corporation
11. Preferred stock (Points :2)
has a higher claim on dividends and assets than common stock
is preferred by stockholders as a potentially better investment
stockholders have more voting rights than common shareholders
has a higher claim on assets in liquidation than creditors do
12. Par value is a nominal value assigned to each share of stock by a corporation. (Points :2) True False
13. On January 1, 2007 Healing Health Food Stores issued $400,000 face value of five-year, annual bonds. The stated rate was 12% and on the date of sale, the market rate is 10%.
Required: a. Will these bonds sell at face value, above, or below? Why? b. Determine the selling price of these bonds. Show your work. If you can't solve this part of the problem, merely make up an answer, write it in the space below, and use that answer as the basis for your answer to part (c) below. c. What amount will be reported on the year-end 2007 income statement for the first year's interest expense? d. What amount will be reported on the year-end 2007 statement of cash flows for the interest on these bonds? (Points :2)
14. Velox Corporation borrowed $200,000 at 10% annual interest. The loan is to be repaid in three equal year-end installments. Required: a. Determine the size of the required payments. b. Complete the amortization table below: Year Beginning Principal Payment Interest Expense Principal Repaid Ending Principal 1 2 3 (Points :2)
15. On March 1, Pluto Corporation declared and issued a 10% stock dividend on its 200,000 outstanding shares of $3 par value common stock. On September 1, Pluto declared a 3-for-1 stock split and changed its par value accordingly. The market value of Pluto's stock was $20 per share on March 1 and $24 per share on September 1. On February 28, Pluto's stockholders' equity appeared as follows: Common stock (200,000 $3 par shares issued) $ 600,000 Paid-in capital in excess of par 1,800,000 Contributed capital 2,400,000 Retained earnings 1,600,000 Total stockholders' equity $4,000,000 Required: Prepare the stockholders' equity section after the stock split. (Points :2)
16. The price at which bonds sell is determined by the interaction of stated rates of interest and market rates of interest. Describe the two types of interest rates and explain how they interact to determine the selling prices of bonds. (Points :2)
17. Off-Shore Corporation reported the following items in its December 31, 2007, financial statements: Capital lease obligations (10% due in 2008 $ 40,000 Treasury stock 10,000 Preferred stock 150,000 Accounts payable 4,500 Bonds payable (due 2012) 450,000 Contingent liability (reasonably possible to require payment in 2009) 20,000 Common stock 125,000 Wages payable 7,500 Required: Prepare schedules of (a) current and (b) long-term liabilities. (Points :2)
18. Mooreland Corporation issued $500,000 of 10-year, 7% bonds on January 1, 2007. The bonds pay interest semiannually. How much did the bonds sell for under each of the following situations? a. The bonds sold to yield 8%. b. The bonds sold to yield 6%. (Points :2)
19. Mazeltov Corporation issued $100,000 of 15-year, 8% bonds on January 1, 2006 The bonds pay interest annually and sold at 109.10% to yield 7%. a. How much interest expense should Mazeltov recognize on the bonds for the year ended December 31, 2008? b. What amount of net liability should Mazeltov report for the bonds on its December 31, 2009 balance sheet? c. What amount of its 2010 payment will be interest? (Points :2)
20. Flying Things, Inc. is planning to issue bonds having a $250,000 face value, a 10% stated rate and a life of 10 years. Assume the bonds are sold to yield 8%. Required: a. At what price would you expect the bonds to sell? Clearly and neatly show your supporting computations. b. Complete the first three years of the amortization table below: Year Beginning Principal Interest Paid Interest Expense Decrease in Principal Ending Principal 1 2 3 c. What total amount of interest expense will be incurred on these bonds during the first three years? Describe how you obtained this amount. (Points :2)