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Chapters 13 and 14

Advantage of issuing bonds instead of common stock

*Tax saving results
*Income to common shareholders may increase.
*Stockholder control is not affected.

Not an advantage of issuing bonds instead of common stock

Earnings per share on common stock may lower.

Market > Stated

Sells at a discount.

Entry to record amortization of a premium on bonds payable on an interest payment date includes:

debit Int. Exp.
debit Prem. on Bonds Pay.
credit Cash

Entry a company records for the issuance of bonds when the contract rate is greater than the market rate:

debit Cash
credit Prem on Bonds Pay.
credit Bonds Pay.

Market < Stated

Bond sells at a premium

If bonds are issued at a premium, the stated interest rate is...

higher than the market rate of interest.

Selling the bonds at a premium has the effect of....

causing the total cost of borrowing to be lower than the bond interest paid.

Bonds with a face amount of $1 mil., are sold at 106. Record the entry:

Debit cash 1,060,000
Credit Prem. on Bonds Pay 60,000
Credit Bonds Pay 1,000,000

When bonds are sold for more than their face value, the carrying value of the bonds is equal to...

face value plus the unamortized premium

The balance in discounts bonds payable....

would be subtracted from the related bonds payable on the bal. sheet.
Bonds Pay - Disc or +Prem

If a company borrows money from a bank as an installment note, the interest portion of each annual payment will....

equal the interest rate on the notes x's the carring amount of the note at the beg. of the period.

Temp. Investments

reported as current assets.

Cost Method

investments of less than 20%

Equity Method

investments of 20% - 50%; records investments at face; Dividents are NOT income

Under the equity method, the receipts of cash dividends on an investment in common stock of Vallerio Corp. is account for as....

debit Cash
credit Investment in Vallerio

The method of accounting for investment in equity securities in which the investor records its share of the periodic net income of teh investee is ....

equity method

When shares of stock held as in invest. are sold, the diff. b/t the proceeds and the carrying amt. of the invest. is recorded as....

gain or loss

Parker Comp. owns 83% of the outstanding stock of Tadeo Comp. Parker Comp. is referred to as the...


The method used to account for invest. in com. stk. is deteremined by...

the extent of the investors influence over the operating and financial affairs fo the investee.

When the cost method is used to account for an invest., the carrying value of the invest. is affected by...

neither the earnings nor the dividends of the investee.

The company whose stock is owned by the parent comp. is called the...

subsidiary company.

If one company owns more than 50% of the common stock of another company....

a parent-subsidiary relationship exist.

The acct. Unrealized Gain (Loss) on Trading securities should be included in....

income statement as other revenue (Expenses)

The account Valuation Allowance for Trading Securities is found on the:

Balance sheet as an adjustment to Stockholder's Equity.

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