For each of the following, state whether True or False: If you repurchase stock at an...

For each of the following, state whether True or False:

If you repurchase stock at an amount less than its original issue price, you can record a gain.

If you repurchase stock and then reissue it at a higher price, you can record a gain.

Interest expense is computed using the effective rate of interest, not the stated rate.

Cash interest paid is computed using the stated rate of interest, not the effective rate.

Non-interest-bearing notes payable have no interest expense.

Expert Solution

If you repurchase stock at an amount less than its original issue price, you can record a gain.
FALSE.
Repurchased stock are treasury stock and they are recorded AT COST at which they are purchased. No gain/loss is recognised.
If you repurchase stock and then reissue it at a higher price, you can record a gain.
FALSE.
The higher price (in excess of cost at which they are acquired) is recorded as Paid in Capital from treasury Stock. No gain or loss is recognised.
Interest expense is computed using the effective rate of interest, not the stated rate.
TRUE.
Interest Expense = Carrying amount or Book Value x Effective Interest rate.
Cash interest paid is computed using the stated rate of interest, not the effective rate.
TRUE.
Cash Interest = Face Value x Stated rate of interest.
Non-interest-bearing notes payable have no interest expense
FALSE.
The interest is ‘imputed’ and recognised by discounting the non interest bearing note.

ekkarill92 answered 9 months ago

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