ACCTG 201 Chapter Notes - Chapter 9: Amortization Schedule, Promissory Note, Capital Structure

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Pricing a bond: we calculate the issue price of a bond as the present value of the face amount plus the present value of the periodic interest payment. 3: the higher the market interest rate, the lower the bond issue price will be. Bonds issued at a premium: premium when the issue price of a bond is above its face amount, the issue price of a bond can be issued at face amount, below face amount, or above face amount. Bonds issued at face value: debit cash, credit bonds payable, debit interest expense, credit cash. Bonds issued at a premium: debit cash, credit bonds payable and premium on bonds payable, debit interest expense and premium on bonds payable, credit cash. 5: taking on more debt (higher leverage) can be good or bad depending on whether the company earns return in excess of the cost of borrowed funds.

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On January 1 of Year 1, Bryson Company obtained a $197,000, four-year, 5% installment note from Campbell Bank. The note requires annual payments of $55,556, beginning on December 31 of Year 1.

Required:

	a. Prepare a table for this installment note, similar to the one presented in Exhibit 4 .
	b. Journalize the entries for the issuance of the note and the four annual note payments. Refer to the Chart of Accounts for exact wording of account titles.
	c. Describe how the annual note payment would be reported on the Year 1 income statement.

Chart of Accounts

CHART OF ACCOUNTS

Bryson Company

General Ledger

	ASSETS
110	Cash
111	Petty Cash
121	Accounts Receivable
122	Allowance for Doubtful Accounts
126	Interest Receivable
127	Notes Receivable
131	Inventory
141	Office Supplies
142	Store Supplies
151	Prepaid Insurance
191	Land
192	Store Equipment
193	Accumulated Depreciation-Store Equipment
194	Office Equipment
195	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
221	Salaries Payable
231	Sales Tax Payable
232	Interest Payable
241	Notes Payable
251	Bonds Payable
252	Discount on Bonds Payable
253	Premium on Bonds Payable

	EQUITY
311	Common Stock
312	Paid-In Capital in Excess of Par-Common Stock
315	Treasury Stock
321	Preferred Stock
322	Paid-In Capital in Excess of Par-Preferred Stock
331	Paid-In Capital from Sale of Treasury Stock
340	Retained Earnings
351	Cash Dividends
352	Stock Dividends
390	Income Summary

	REVENUE
410	Sales
610	Interest Revenue
611	Gain on Redemption of Bonds

	EXPENSES
510	Cost of Goods Sold
515	Credit Card Expense
516	Cash Short and Over
521	Sales Salaries Expense
522	Office Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Repairs Expense
534	Selling Expenses
535	Rent Expense
536	Insurance Expense
537	Office Supplies Expense
538	Store Supplies Expense
541	Bad Debt Expense
561	Depreciation Expense-Store Equipment
562	Depreciation Expense-Office Equipment
590	Miscellaneous Expense
710	Interest Expense
711	Loss on Redemption of Bonds

Amortization Table

Shaded cells have feedback.

a. Prepare a table for this installment note, similar to the one presented in

Exhibit 4

. Round amounts to the nearest dollar.

Amortization of Installment Notes
	A	B	C	D	E
For the Year Ending Dec. 31	January 1 Carrying Amount	Note Payment	Interest Expense	Decrease in Notes Payable	Dec. 31 Carrying Amount
Year 1
Year 2
Year 3
Year 4

Points:

20 / 23

Feedback

Check My Worka. Review

Exhibit 4

in the text. The cash payment is the same in each year. The interest and principal repayment, however, change each year. This is because the carrying amount (book value) of the note decreases each year as principal is repaid, which decreases the interest.

After the final payment, the carrying amount on the note is zero, indicating that the note has been paid in full.

Journal

Shaded cells have feedback.

b. Journalize the entries for the issuance of the note and the four annual note payments. Enter transactions for Year 1 on page 10 of the journal, Year 2 on page 12, Year 3 on page 15, and Year 4 on page 17. Refer to the Chart of Accounts for exact wording of account titles.

Question not attempted.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

Score: 0/63

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5

Points:

0 / 12

Question not attempted.

PAGE 12

JOURNAL

ACCOUNTING EQUATION

Score: 0/37

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3

Points:

0 / 7

Question not attempted.

PAGE 15

JOURNAL

ACCOUNTING EQUATION

Score: 0/37

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3

skykoala735

1.All of the following are generally considered current liabilities on a company balance sheet except

Wages Payable

Interest Payable

Bonds Payable

Taxes Payable

------------------------------------

2.If a one-year company loan spans equally over 2 fiscal periods, but interest is set to be paid when the loan amount itself is due, the company would

Still pay cash out for half the interest at the end of the first fiscal year to keep its records correct

Accrue the appropriate amount of interest payable at the end of the first fiscal period

Increase the Loan Payable amount by the interest amount accrued at the end of the first fiscal period

Do nothing until the interest payment itself is actually due

-------------------------------------------------

3.If a firm has a warranty obligation on its product that is redeemed by the customer for cash, the firm would

		Record a warranty payable at the time of the redemption
		Reduce the already recorded warranty payable and cash for the amount of the claim
		Do nothing and just fix the product
		Reduce revenues and retained earnings at the time of the warranty redemption

---------------------------------------

4.If a company collects sales tax on its products for the state in which it operates its business, it would

Include the amount in Revenue

Include the amount as an expense

Record a Sales Tax Payable until it is due to the state

Put the cash in a box under the counter

------------------------------------------------------

5.An installment loan generally has all of the following features except

The cash payment per period by the borrower is the same amount each time

The amount of the payment applied to interest decreases over time

The amount of the payment applied to interest increases over time

The amount of the payment applied to the principal increases over time

------------------------------------------------

6.A pre-approved financing plan that allows companies to borrow and repay funds as needed up to the maximum amount set by the creditor and that is often used for relatively short-term borrowing to finance varying business needs is

		Trade credit
		A Line of Credit
		An account payable
		A debit card

coralbutterfly797

1. Which of the following statements is true about apartnership?

a. One capital and one drawings account is used for eachpartnership.

b. The capital account is used to record each partner'sinvestment and that partner's designated share of the earnings.

c. Partnerships are subject to separate income taxes.

d. The drawings account is closed to retained earnings at theend of the period.

2. Which of the followingstatements does not correctly describe preferred stock?

a. Preferred shareholders have a preference with respect todividend payments.

b. Preferred shareholders have a preference with respect toassets in the event of dissolution.

c. Preferred shareholders have voting rights on a per sharebasis.

d. Preferred stock typically has a fixed dividend rate.

3. Which of the followingstatements is false?

a. Common stockholders have a residual claim on assets in theevent of liquidation.

b. Shares of stock held in the treasury are subtracted from thenumber of issued shares in the determination of the number ofoutstanding shares.

c. Common stockholders have voting rights at annual stockholdermeetings.

d. Corporations are governed by their stockholders.

4. Which of the following would not be reportedas a financing activities cash flow?

a. Issuing common stock for cash.

b. Cash dividend payments.

c. Purchasing treasury stock.

d. Purchase of a building by signing a note payable.

5. Which of the following is not reported as acash flow from investing activities?

a. Sale of a depreciable asset for cash.

b. Purchasing land in exchange for common stock.

c. Selling a long-term investment at a loss for cash.

d. Purchase of a patent in exchange for cash.

6. Which of the following transactions would be reported withinthe investing section of the cash flow statement?

a. The cash sale of land at a loss.

b. The purchase of a building in exchange for common stock.

c. The receipt of a stock dividend from a stock investment.

d. The cash receipt of a dividend from a stock investment.

7. Which of the following would be subtracted from net incomewhen determining cash flows from operating activities under theindirect method?

a. A decrease in utilities payable.

b. Patent amortization expense.

c. A decrease in prepaid rent.

d. A loss on the sale of a depreciable asset.

7. Which of the following would be added to net income whendetermining cash flows from operating activities under the indirectmethod?

a. A decrease in accounts payable.

b. Patent amortization expense.

c. An increase in prepaid insurance.

d. A gain on the sale of a depreciable asset.

8. Which of the following would not be a cashflow from financing activities?

a. Issuance of common stock for cash.

b. Borrowing cash on a long-term note payable.

c. Collection of a cash dividend.

d. Repayment of principal on a long-term note payable.

9. The cash payment of a previously declared dividend increaseswhich of the following ratios?

a. Debt-to-equity.

b. Earnings per share.

c. Price/earnings ratio.

d. Asset turnover.

10. The debt-to-equity ratio measures which of thefollowing?

a. Liquidity.

b. Solvency.

c. Profitability.

d. Market strength.

11. Negative financial leverage occurs when the:

a. Average net (after tax) interest rate on borrowed funds isless than the company's earnings rate on its assets.

b. Return on assets is more than return on equity.

c. Return on equity is more than return on assets.

d. Operating expenses exceed gross profit.

12. Which of the following ratios is notconsidered to be a test of profitability?

a. Current ratio.

b. Profit margin.

c. Return on assets.

d. Earnings per share.

13. Home Depot's operating strategy is to offer a broadassortment of high-quality merchandise and services at competitiveprices using highly knowledgeable service-oriented personnel andaggressive advertising. Which of the following isnot as critical to achieving Home Depot'sstrategy?

a. Cost control

b. Product differentiation

c. High level of customer service

d. High sales volume

13. Which of the following ratios is not partof the DuPont model?

a. Asset turnover.

b. Debt-to-equity.

c. Net profit margin.

d. Return on equity.

Which of the following statements is notcorrect?

Purchasing fixed assets through debt financing decreases thefinancial leverage ratio.

Accruing an expense will affect the net profit margin ratio.

Return on equity may increase even when the financial leverageratio decreases.

Purchasing treasury stock results in a decrease in assetturnover.

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ACCTG 201 Chapter Notes - Chapter 9: Amortization Schedule, Promissory Note, Capital Structure

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