Question

1. What is treasury stock? Why do corporations purchase and issue treasury stock?

2. How do you record the purchase of treasury stock? How does treasury stock affect the equity section of the balance sheet?

3. How would you record the reissuance of treasury stock if the proceeds obtained are:

a. At cost of the treasury stock?

b. Less than the cost of the treasury stock?

c. More than the cost of the treasury stock?

4. What is the main difference between notes payable and bonds payable?

5. What is the main difference between a bond and a share of stock?

6. What does it mean to issue bonds at

a. Par?

b. Discount?

c. Premium?

7. What is the contract rate and the market rate for bonds?

8. How do you compute total bond interest expense when a bond is sold at a discount? Explain your answer.

9. How do you compute bond interest expense when a bond is sold at a premium? Explain your answer.

10. What accounts are affected when recording the issue date of a discount bond? What accounts are affected when recording interest and amortization? Which accounts are credited and which accounts are debited when creating journal entries?

11. What accounts are affected when recording the issue date of a premium bond? What accounts are affected when recording interest and amortization? Which accounts are credited and which accounts are debited when creating journal entries?

12. What accounts are affected when a bond matures? Which accounts are credited and which accounts are debited when creating journal entries?

Please answer all of the questions, if you can not answer all of the questions do not reply.

Answer 1

ANSWER:-

1. Treasury Stock:- Treasury stock are the portion of shares that a company keeps in its own treasury. Treasury stock may have come from a repurchase or buyback from shareholders, or it may have never been issued to the public in the first place.

- Purchasing treasury stock reduces the corporation’s assets and equity by equal amounts.

2. We record it on a stockholder’s equity sheet. It reduces equity through the debit to the treasury stock account.

3.

a. The entry is the reverse of the one made to record the purchase.

b. The entry to record the sale depends on whether the Paid-In Capital, treasury stock account has a credit balance. If it has a zero balance, the excess of cost over the sales price is debited to retained earnings. If the Paid-In Capital, treasury Stock account has a credit balance, it is debited for the excess of the cost over the selling price but not to exceed the balance in this account.

c. If Treasury stock sale proceeds more than the cost of the treasury stock than excess amount transfer to Security Premium account.

4. Notes payable:- A note payable is a written promissory note. Under this agreement, a borrower obtains a specific amount of money from a lender and promises to pay it back with interest over a predetermined time period. An example of a notes payable is a loan issued to a company by a bank.

    Bond payable:- Bonds payable are a form of long term debt. Bonds are issued by corporations, hospitals, and governments.The issuer of bonds makes formal promises to pay interest usually every six months (semiannually) and to pay the principal or maturity amount at a specified date many years in the future.

          Both accounts payable and notes payable represent amounts owed by the company. Notes payable is for debt that involves a written promissary note, usually from a bank or another financial institution. Accounts payable is for other debt owed, often to a vendor or supplier.