Exam 3 Review

The stated rate is used to do the present value calculation for a bond.

Company A borrowed $100,000 at 5% annual interest for 5 months. The initial JE will be the PV of the note payable

The book value of a bond issued at discount decreases until it reaches maturity

For a long-term loan, the PV of the future cash flows is the same thing as the beginning net book value of the loan.

Companies record the value of their own brand as “goodwill” on their balance sheet.

Cash outflow to purchase equipment is classified as

For bonds, the rate of return equals the coupon rate

To close out expense accounts, you ______ them

Indirect and Direct Method of Cash Flows result in the same total cash flows from operating activities

Outstanding stock is always equal to issued stock

Available for Sale (AFS) Debt Investments report unrealized gains/losses within net income and retained earnings

The balance sheet account balances do not carry forward from period to period

If there is a net loss for the period we will credit Retained Earnings in the closing entry.

Treasury stock has a normal credit balance.

Bond discount is a liability account with a normal credit balance

The cost of borrowing will change if the market rate of interest changes throughout the bond’s life.

Passive(<20%) investment in equity securities is measured & reported at initial cost during the whole investment period.

If the purchase price is less than the fair value of net assets, goodwill will be recorded

For installment notes, there are no payments of principal or interest until the maturity date of the loan.

Preferred stock includes voting rights

ABC purchased XYZ. If there is any goodwill, XYZ should be the company to record the goodwill.

Companies can reissue treasury stock

Trading investments are always reported as short-term.

Income statement accounts are temporary and balance sheet accounts are permanent.

The number of shares outstanding is the same as the number of authorized shares.

The Direct Method of the Statement of Cash Flows starts with net income.

Bond Principal can also be called?

The interest expense from a noninterest bearing note will increase from period to period

If the market rate equals the coupon rate at issuance, the bond’s price should be the same as its principal.

If the market rate is higher than the coupon rate of the bond it is sold at a premium.

Sales Discounts, CC Discounts, and Sales R&A are all closed out at the end of the period with credit balance

When do you use the equity method for investments?

Cash interest payments are calculated using the stated rate but interest expense is calculated using the effective rate.

If preferred stock is noncumulative, any dividends not paid in previous years will be paid in the following years.

Coupon rate can also be called?

Internally developed patents are shown on the balance sheet at cost.

Higher quality bonds have a lower default risk, while lower-quality bonds have a higher default risk

Interest expense is always calculated based on the amount borrowed or owed.

Cash inflow for dividend income is classified as a Financing Activity

Cash paid for interest is classified as an operating activity on the Statement of Cash Flows

Companies must pay preferred stock dividends before common stock dividends

Prepaid Insurance & ADA are temporary accounts and are closed out with a credit at the end of the period.

In calculating goodwill, net assets are calculated using fair values, not book values.