CHAPTER 9&10 Issuance price = Present value of annuity (coupon payment) + PV (face value)

Coupon rate = market rate -> Selling at face value, no discount (Issuance price = face value or Par value
Coupon rate < market rate -> Discount Issuance price < face value -> Credit Income statement: Cr. Net, Dr. Rev & Expense
Coupon rate > market rate -> Premium Issuance price > Face value -> Debit Balance sheet: Dr. asset, Cr. Liability & SE
Face value
Year Cash payment Interest expense Book value of bond payable
Only Face value * coupon rate (every Book value last period*market rate Issuance price= Face value= book
BV on year stay the same) (stay the same every year because the value (stay the same every year
year 0. BV don’t change) because have no discount or
premium)
Example: March 15 2024, Purchase a building for $25,000 cash and a bonds payable with face value of $500,000. Due in 10
years. Coupon rate 5%, market rate 5%, face value $500,000.
Journal entry 3/5/2024 (year 0) Journal entry 3/5/202x
Dr. Building $525,000 [(FV*coupon) + FV] Dr. Interest expense $25,000
Cr. Bond payable $500,000 Cr. Cash payment $25,000
Cr. Cash $25,000
Discount
Suggestion to calculate: balance of discount on bond payable > book value -> interest expense -> amortization
Year Cash Interest expenses Amortization Balance of discount on Bond BV Of bond payable
payment of Discount payable (discount) (bond liability)
how FV*coupon BV last Cash payment For year 0, Discount = FV – For year 0, BV=
(unchanged period*market – interest issuance price. For year n = FV*Coupon rate. For
) rate (change expenses Discount last year + amortization “n” year, BV = FV –
every year) (change by (change by yrs) discount of year n
yrs)

Example: March 15 2024, Purchase a building for $25,000 cash and a bonds payable with face value of $500,000. Due in 10
years. Coupon rate 5%, market rate 7%, face value $500,000. (market rate > coupon rate)
Issuance price = PV(7%,10)*500,000+PVA(7%/10)*500,000*5% = $429,764
Journal entry 3/5/2024 (year 0) Journal entry 3/5/202x Journal entry 3/5/2034 (last year)
Dr. Building $454,764.5 (issuance price Dr. Interest expense (change by year) Dr. Interest expense (change by year)
+cash) Cr. Cash payment $25,000 Dr. Bond payable $500,000
Dr. Discount on bond payable Cr. Discount on bond payable Cr. Cash payment $25,000
$70,235.5 (FV – issuance price) (Amortization of discount) Cr. Discount on bond payable
Cr. Bond payable $500,000 (Amortization of discount)
Cr. Cash $25,000
Premium
Year Cash Interest expenses Amortization Balance of Premium on Bond BV Of bond payable
payment of Premium payable (discount)
how FV*coupon BV last Cash payment For year 0, Premium = FV – For year 0, BV=
(unchanged period*market – interest issuance price. For year n = FV*Coupon rate. For
) rate (change expenses Premium last year - amortization “n” year, BV = FV +
every year) (change by (change by yrs) Premium of year n
yrs)

Example: March 15 2024, Purchase a building for $25,000 cash and a bonds payable with face value of $500,000. Due in 10 -
years. Coupon rate 5%, market rate 3%, face value $500,000. (market rate < coupon rate)
Issuance price = PV(3%,10)*500,000+PVA(3%/10)*500,000*5% = $585,300.00
Journal entry 3/5/2024 (year 0) Journal entry 3/5/202x Journal entry 3/5/2034 (last year)
Dr. Building $610,300 (issuance price + Dr. Interest expense (change by year) Dr. Interest expense (change by year)
cash + premium on Bond payable) Cr. Cash payment $25,000 Dr. Bond payable $500,000
Cr. Premium on bond payable $ 85,300 Cr. Premium on bond payable Cr. Cash payment $25,000
(issuance price – Face value) $17,559 (Amortization of premium)
Cr. Bond payable $500,000 Dr. Premium on bond payable
Cr. Cash $25,000 (Amortization of premium)
Cr. Cash $500,000
Coupon rate: interest rate (annual basis) printed on the bond. It represents the cash flow the company has to pay
for interest every year. This is not the same as INTEREST EXPENSE
-Market rate: The prevailing interest rate in the market. The market rate does not necessarily equal the coupon
rate. This determines the interest expense.
-Zero coupon: no coupon rate, issuance price = Face value *PV. Issued at a rate that provides a large discount at
issuance.
CHAPTER 11
Common Stock related:
1.Authorized number of shares: Corporate charter: max numbers of share (this will be determined at the
beginning of the company, and can be change later) authorize – issued stock = additional common stock
2.Issued number shares: Number of shares company has issued, those that the owners have decided to
sell in exchange for cash
3.Outstanding number of shares -> EPS (Earnings per share) -> Dividends; stock split: Repurchased its
own stock -> Treasury stock. Outstanding number
of shares =issued number of shares –Treasury stocks. The stock that is held by a company's shareholders on the open market
4.Treasury stock are authorized and issued, but not out standing.
5. If a company repurchased it own stock, the stock equity will decrease and earning per share will increase. IPO: FIRST TIME A COMPANY SELL A SHARE
RE,NI,SE, begin +Net income -Dividend= RE,NI, SE, ending ; Earnings per share (EPS) = company’s stock - > additonal paid in capital .
The payment of a previously declared dividend decreases the asset, Cash, and decreases the liability, Dividends payable.
Net income− prefered stock dividend
A 30% common stock dividend increases the number of common shares outstanding and does not affect total stockholders' equity.
Common stock increase = $15,000 = Common stock cash issue, at par value + Common stock dividend, at par value = $10,000 + $5,000. The sale of treasury stock does not
Weighted average shares outstanding
affect the common stock account.
The dividend payment to the preferred stockholders in 2022 includes 3 years in arrears (2019-2021) plus the current year dividend = 4 years total = 4 years × $13,500 per
Net income
Number of outstanding share
Additional paid in capital = Issued shares - Common stock
Common stock, $5 par value, 108,000 shares authorized
Preferred stock, 11 percent, par value $15 per share, 4,300 shares
authorized
During the year, the following transactions took place in the order
presented:
Sold and issued 20,500 shares of common stock at $30 cash per share.
Sold and issued 1,700 shares of preferred stock at $34 cash per share.
At the end of the year, the company reported net income of $40,100. No
dividends were declared.
Cash Dividends
Declaration Date
10,0000 shares outstanding 0.50$ per share
Dr. Retain Earnings 5,000
Cr. Dividends Payable $5,000
Record Date
NO entry
Payment Date Date
< Dr. Dividends Payable 5,000
> Cr. Cash 5,000
Preferred Stock:
Cumulative vs. Noncumulative
Dividends
Get dividends before common share holders
3.5% of par value of preferred stock (every year)
Cumulative vs. Noncumulative -> don’t have to care about lats year dividend
Example: XYZ Co. Has $32,000 cash for dividend distribution. Example 2: XYZ Co. Has $32,000 cash for dividend distribution.
They have: They have:
Preferred, $5 par value, 1000 outstanding, 2%, non-cumulative Preferred, $5 par value, 1000 outstanding, 2%, non-cumulative
Common, $1 par value, 5,000 shares outstanding. Common, $1 par value, 5,000 shares outstanding.
The Co. Has not paid dividend in last 10 years.

Preferred: 2% * $5 *1,000 = $100 Preferred: 2% * $5 *1,000 * 11 (years, counted this year) = 1,100
Common: the rest 32,000 – 100 = 31,900. Common: the rest 32,000 – 1,100 = 30,900

decrease retained earnings $1.96 million and increase liabilities by $1.96 million.
Stock dividends
< Dr. Retained Earnings (market value)
> Cr. Common stocks (Par value)
Maybe > Cr. Additional paid-in capital (Market value – Par value)
-> Small stock dividend (<20-25%) -> results in a transfer of retained earnings to common stock and additional paid-in capital.
< Dr. Retained Earnings (Par Value)
> Cr. Common stocks (Par value)
-> Large stock dividend (<20-25%) -> results in a transfer of retained earnings to the common stock account.
Stock Splits – Change the par value per share, but the total par value is unchanged. Common share and par value can be changed. The total stockholders' equity is
unaffected by the stock split.
Record payment before common shareholders in liquidation
Example: At the beginning of the year, the stockholders' equity section of the balance sheet of Solutions Corporation reflected the following:
Common stock ($13 par value; 75,000 shares authorized, 35,000 shares outstanding) $ 455,000

Additional paid-in capital 121,000

Retained earnings 738,000

On February 1, the board of directors declared a 65 percent stock dividend to be issued April 30. The market value of the stock on February 1 was $16 per
share. The market value of the stock on April 30 was $18 per share.
Number of share to be issued as stock dividend = Number of share outstanding before stock dividend
x Stock dividend declared
= 35,000 x 65% = 22,750
Par value per share = $13
Amount of stock dividend = Number of share to be issued as stock dividend x Par value per share
= 22,750 x $13 = $295,750
Thomas Corporation repurchased some shares of its own common stock, SE decrease, EPS increase
Bond principal: used to determine the cash interest payments/ is the amount due at the maturity
date of the bond/ is used to determine the cash interest payments.
Effective interest rate means face value
Coupon<market -> cash payment < interest expense/ market rate decrease
The book value of the bond liability increases when interest expense is accrued.
The coupon interest rate is specified in the bond indenture./ An increase in expenses and a decrease in assets.
400,000 shares of $2.50 par value common stock are authorized
280,000 shares of common stock were issued for $5.50 per share
260,000 shares are outstanding
Common stock = $700,000 = 280,000 shares issued × par value of $2.50 per share. Additional paid-in capital is $840,000 = 280,000 shares issued × ($5.50 issue price minus
$2.50 par value). There are 20,000 shares of treasury stock = 280,000 shares issued minus 260,000 shares outstanding. -> Stockholders' equity decreased $110,000 when the
treasury stock was purchased.