Chapter 8 ST investments current asset sold within a yr they are trading held to maturity available for sale after cash on balance sheet LT investments stocks and bonds hold longer than a yr after total current assets on balance sheet Held to maturity recorded at amortized cost interest received semi annually price is quoted as percent of par Market Rate Face Value discount Market Rate Face Value premium Journals Purchase debit LT invest credit cash Interest debit cash face value x full yr rate x 1 2 credit interest rev Amortize debit LT invest credit interest rev cash paid bond value terms of bond face value x interest interest paid face value x issue price cash paid Available for sale recorded at market value changes in market value cause gains loss Realized are from sale Fair value adjustment Unreal gain market value carrying value Debit Add to original cost Unreal loss market value carrying value Credit Sub from original cost Journals Purchase Debit LT investment credit cash Div Received Debit cash credit div rev Adjust to Fair Debit allowance credit un gain OR debit un loss credit allowance Income statement div rev Also other comp income unreal gain loss B S Total current assets LT assets Stockholder s equity Common Stock Other comp income unreal gain loss Present value any given date of a future payment series of payments Pv of 1 is used for single payment PV of annuity use for 2 or more Future Value the sum of money a current investment will be worth in the future Same as Pv uses Need to know interest rate and number of periods to find number Sum of problem x found number Chapter 9 Current liabilities of a known amount accounts payable ST notes payable sales tax payable accrued liabilities payroll unearned rev current portion of long term debt Estimated liability estimated warranty payable A contingent liability should be recorded in the accounts if the amount can be reasonably estimated and related future event will probably occur Failure to accrue interest expense results in an overstatement of net income and understatement of liabilities Unearned revenue is a liability account At end of period adjusting debits to unearned revenue will create a revenue Journals Purchase Inventory debit inventory credit ST note payable Accrue Interest Expense debit interest expense face value x x months 12 credit interest payable Paid Note Payable debit note payable interest payable interest expense credit cash B S note payable interest payable I S interest expense same as interest payable from paid note payable entry Serial Bond matures in installments Unsecured bond is a debenture bond back by good faith of borrower risky higher IR Term bond all bonds in issue mature at same time Secured bond mortgage if borrower defaults issuer takes specified assets house Discount on Bonds Payable normal debit balance contra liability account to bonds payable becomes additional expense over the life of the bond Carrying value of bonds payable bonds payable discount on bonds payable Straight line amortization face value issue price number of interest payments semiannual 2 per year or years Interest expense issue price or interest expense amortization Issuing prices Issued Value Market Value Par value Issued Value Market Value Premium Issued Value Market Value Discount Journals Issued at Par debit cash credit bonds payable Issued at Discount debit cash and discount on bonds payable credit bonds payable Accrual of interest debit interest expense face value x x month 12 credit interest payable premium credit Accrual of interest with discount debit interest expense credit discount on bonds payable and interest payable Pay interest debit interest payable credit cash Pay at discount debit interest expense credit discount and cash Payment of payable debit bonds payable credit cash Sale of bond debit cash and discount credit bonds payable Bond carrying value bonds payable plus premium or minus discount Balance sheet current liabilities accts payable ST notes payable current portion of long term debt interest payable LT liabilities bonds payable LT notes payable Less discounts Add premiums Bond retirement pay early to relieve high interest and to borrow at a lower rate Convertible bonds exchanged for stock Leases rental agreement rental payments for use of an asset Operating lessee has right to use the asset lessor retains risks and rewards of owning lessee records rent expense Capital lessee has right to use the asset lessee assumes risk and rewards of ownership lessee capitalizes the leased asset and records a long term liability Pensions most complicated expense recorded while employee works Underfunded plan assets obligation Overfunded plan assets obligation Chapter 10 Corporations separate legal entity Advantages continuous life transferability of ownership limited liability of stockholders Disadvantages double taxation government regulation Most power in corp Stockholders chairperson of board CEO president COO chief financial officer CFO Issuing shares of stock increase assets and stockholder s equity Par value in an arbitrary amount that establishes that legal capital for each share Authorized shares the most shares a company can give to stockholders Preferred stock preference as to assets on liquidation preference on dividends the right to convert to common least likely for extra liability for stockholders Total Paid in capital preferred common paid in capital in ex SE Total paid in capital Retain Earn treasury bonds less SE only in SE Journals for acquiring assets for stocks A debit cash credit common stock and paid in capital Then debit assets credit cash B debit assets credit common stock and paid in capital The account balances are the same SE on Balance sheet common stock paid in capital retained earnings other SE Total SE Journal for no par stock debit cash credit common stock multiply shares by share Report treasury stock with no gain on income statement On B S SE reports treasury stock Buying Treasury stock decreases total assets and SE equal to cost of treasury Selling treasury stock increases total assets and SE equal to the sale price of the treasury stock sold multiple bought shares by sold price When treasury stock is sold for less than its cost the entry should include a debit to retained earnings Paid in capital sale price per share cost per share x number of shares sold creates credit to paid in capital treasury stock for selling stock Journals for resale of Treasury Buy debit treasury