Intermediate Accounting 2 Exam 1

Held to Maturity =

Debt securities that the enterprise has the positive intent and ability to hold to maturity.

Trading Securities =

investments in debt or equity securities acquired principally for the purpose of selling them in the near term.

Avail for sale securities =

Debt Securities not classified as held to maturity, or trading securities.

Equity Method =

reporting method using the investment cost adjusted for subsequence earnings and dividends for investee.

Consolidate

Method of reporting in which the financial statements of the investor and investee are combined as if they are a single company.

Effective Rate =

Recording interest each period as the effective market rate of interest multiplied by the outstanding balance of debt(during the interest period).

Present Value =

The present value of a single amount is today's equivalent to a particular amount in the future.

Zero-Coupon Bonds =

a debt security that doesn't pay interest, but is traded at a deep interest, rendering profit at maturity when the bond is redeemed for its full face value. Investors receive no periodic cash interests, even though annual interest is revenue is reported f

Stated Rate =

Interest rate stated on the face of the bond.

Premium =

Sell for more than face value

Discount =

Sell for less than face value

Par value =

The normal value of a bond

Installment Note =

Notes payable for which equal installment payments include both an amount that represents interest and an amount that represents a reduction of the outstanding balance so that at maturity the note is completely paid.

Carrying value of a Bond =

par/face value of a bond plus any unamortized premiums or less any unamortized discounts. reported on the balance sheet.

Lease Classification =

A lease is accounted for as either a rental agreement or a purchase/sale accompanied by a debt financing. The choice of the accounting method determines the leasing agreement.

Bond interest expense =

The amount of interest expense incurred in the time that pertains to the bonds payable. Bonds interest expense includes a portion of the premium or discount on bonds payable that applies to the time interval shown on the income statement.

Bond interest expense calculations

Stated Rate X Face Value

What is a trading securities classification on the Balance Sheet?

Current Asset, they are recorded at cost.

What is a trading securities classification on the Cash Flow statement?

Operating activity

Where is available for sale reported on the cash flow statement?

Investing

Where are gains and losses reported?

Other comprehensive income

Calculate interest?

Principle X Rate X Time

calculate dividend revenue?

multiply the percentage owned by the total dividend issues by the company .

Calculate bond sale price =

Example = determine the price of a $500,000 bond issue under the following independent assumption. Maturity = 10 years, interest paid annually, Stated rate = 10%, effective rate = 12%
Step 1) Find the PV of interest payments.
interest per payment = 50,000

Straight line v.s effective interest amortization

SL= amount of the discount to be reduced periodically is calculated, and the recorded interest is the plug figure. transfer and equal amount from discount or premium account to interest expense each payment period.
EFFECTIVE= the amount of interest expens

Y/E investments $ on B/s

$1,250,000 = cost of machine
( $281,453) = 1st semi annual lease payment
= $968,457
($233,026)
= 735,521 = answer
281,453 = 1st semi annual lease payment
($48,427) = calculated interest PxRxT
=233,026

Avail for sale debt securities are recorded at?

Fair Value, the unrealized gains are adjusted at fair value at the end of each reporting period.