Chap 9 Part 1
What is the difference between simple and compound interest?
Simple- interest accrued over time on principle only
Compound- Principle and accumulated interest incurs interest in future
________ are bonds that the corporation reserves the right to buy back early (called) at stated price
Callable bonds
What is the journal entry for an interest-bearing note to record payment at maturity?
Debit Note Payable
Debit Interest Expense
Credit Cash
When the market rate is lower than the stated (coupon) rate, the bond is selling at...
A. Face Value
B. a Premium
C. a Discount
Premium
The corporation will pay out the same amount of total cash on a bond regardless of how the bond was issued, true or false?
True
What is the AJE when recording the estimated warranty liability
Debit Warranty expense
Credit Estimated Liability
Credit Cash
A bond sold originally at 101 is now selling at 98, therefore market interest rates have
A. Increased
B. Decreased
C. Remain the same
Increased
What is the difference between an interest bearing note and a non-interest bearing note?
Interest bearing= principle and interest due at maturity
Non-interest bearing= interest is deducted in advance
The carrying value of a non-interest bearing note payable at the end of four years will increase over the life of the note, true or false?
True
What are the four steps to computing the issue/selling price of a bond?
1. Find Interest Payments
2. Find PV of Face amount
3. Find PV of payments
4. Add PV of face and payments
What are the 3 rules for recording contingent liabilities?
If probable and can be estimated?
Remote?
Probable and can not be estimated or possible?
If probable and can be estimated: Recorded at journal entry
If remote: do nothing
If probable and cannot be estimated or possible: add to footnotes