1. Red Corporation had $1,750,000 in total liabilities and $3,000,000 in total a
ID: 2465955 • Letter: 1
Question
1. Red Corporation had $1,750,000 in total liabilities and $3,000,000 in total assets as of December 31, 2014. Of Red's total liabilities, $600,000 is long-term.
Calculate Red's debt to assets ratio and its long-term debt to equity ratio. Round your answers to four decimal places, if required.
2. Cookie Dough Corporation issued $850,000 in 9%, 10-year bonds (payable on December 31, 2024) on December 31, 2014, for $907,759. Interest is paid on June 30 and December 31. The market rate of interest is 8%.
Prepare the journal entries for December 31, 2016 and 2017. If an amount box does not require an entry, leave it blank. If required, round your answers to the nearest whole dollar.
3. Cookie Dough Corporation issued $850,000 in 9%, 10-year bonds (payable on December 31, 2024) on December 31, 2014, for $907,759. Interest is paid on June 30 and December 31. The market rate of interest is 8%.
Prepare the amortization table through December 31, 2017, using the effective interest rate method. If an amount box does not require an entry, leave it blank or enter "0". If required, round your answers to the nearest whole dollar.
4. Sicily Corporation issued $300,000 in 5% bonds (payable on December 31, 2023) on December 31, 2013, for $257,363. Interest is paid on June 30 and December 31. The market rate of interest is 7%.
Prepare the journal entries for December 31, 2014 and 2015. If an amount box does not require an entry, leave it blank. Round amounts to the nearest whole dollar.
5. Sicily Corporation issued $300,000 in 5% bonds (payable on December 31, 2023) on December 31, 2013, for $257,363. Interest is paid on June 30 and December 31. The market rate of interest is 7%.
Prepare the amortization table through December 31, 2015, using the effective interest rate method. If an amount box does not require an entry, leave it blank or enter "0". If required, round your answers to the nearest whole dollar.
6. On December 31, 2012, Brock & Co. issued $600,000 of bonds payable at par. The bonds have a 9% stated rate, pay interest on March 31, June 30, September 30, and December 31, and mature on December 31, 2013.
Prepare the journal entry to record the interest payment on June 30, 2013.
7. Kiwi Corporation issued at par $350,000, 9% bonds on December 31, 2013. Interest is paid annually on December 31. The principal and the final interest payment are due on December 31, 2015.
1. Prepare the entry to recognize the issuance of the bonds.
2. Prepare the journal entry for December 31, 2014.
3. Prepare the journal entry to record repayment of the principal on December 31, 2015.
4. Conceptual Connection: How would the interest expense for 2014 change if the bonds had been issued at a premium?
Bond Premium and Discount
8. Markway Inc. is contemplating selling bonds. The issue is to be composed of 750 bonds, each with a face amount of $1,000.
Required:
1. Calculate how much Markway is able to borrow if each bond is sold at a premium of $30.
$
2. Calculate how much Markway is able to borrow if each bond is sold at a discount of $10.
$
3. Calculate how much Markway is able to borrow if each bond is sold at 92% of par.
$
4. Calculate how much Markway is able to borrow if each bond is sold at 103% of par.
$
1 & 2. Calculate the issue price for each bond then consider the total number of bonds to calculate total proceeds.
3 & 4. The par value is the same as face value.
5. Assume that the bonds are sold for $975 each. Prepare the entry to recognize the sale of the 750 bonds. If an amount box does not require an entry, leave it blank.
Journal
Account and Explanation
Debit
Credit
Record issuance of bonds at discount
5. When bonds are issued, any premium or discount is recorded in a separate valuation account.
See Cornerstone 9-1.
Learning Objective 1 and Learning Objective 2.
6. Assume that the bonds are sold for $1,015 each. Prepare the entry to recognize the sale of the 750 bonds. If an amount box does not require an entry, leave it blank.
Journal
Account and Explanation
Debit
Credit
9
9. Record issuance of bonds at premium
Note Interest Payment and Interest Expense (Effective Interest)
Jones Manufacturing sold $900,000 of 15-year, 7% notes for $822,186. The notes were sold December 31, 2013, and pay interest semiannually on June 30 and December 31. The effective interest rate was 8%. Assume Jones uses the effective interest rate method.
Required:
1. Prepare the entry to record the sale of the notes. If an amount box does not require an entry, leave it blank.
2013 Dec. 31
Journal
Account and Explanation
Debit
Credit
Record issuance of notes at discount
2. Determine the amount of the semiannual interest payments for the notes.
$
3. Prepare the amortization table through 2015. If an amount box does not require an entry, leave it blank or enter "0". If required, round your answers to the nearest whole dollar.
Jones Manufacturing
Amortization Table
Period
Cash Payment (Credit)
Interest Expense (Debit)
Discount on Notes Payable (Credit)
Discount on Notes Payable Balance
Carrying Value
At issue
$
$
$
$
$
6/30/14
12/31/14
6/30/15
12/31/15
4. Prepare the entry for Jones' journal at June 30, 2014, to record the payment of 6 months' interest and the related interest expense. If an amount box does not require an entry, leave it blank. If required, round your answers to the nearest whole dollar.
2014 June 30
Journal
Account and Explanation
Debit
Credit
Record interest expense
5. Determine interest expense for 2015. If required, round your answer to the nearest whole dollar.
$
10. On December 31, 2012, Hawthorne Corporation issued for $155,989, 5-year bonds with a face amount of $150,000 and a stated (or coupon) rate of 9%. The bonds pay interest annually and have an effective interest rate of 8%. Assume Hawthorne uses the effective interest rate method.
1. Prepare the entry to record the sale of the bonds. If an amount box does not require an entry, leave it blank.
2. Calculate the amount of the interest payments for the bonds.
11.On December 31, 2013, University Theatres issued $500,000 face value of bonds. The stated rate is 8%, and interest is paid semiannually on June 30 and December 31. The bonds mature in 15 years.
a. Assuming the market rate of interest is 6%, calculate at what price the bonds are issued.
b. Assuming the market rate of interest is 10%, calculate at what price the bonds are issued.
5. Assume that the bonds are sold for $975 each. Prepare the entry to recognize the sale of the 750 bonds. If an amount box does not require an entry, leave it blank.
Journal
Account and Explanation
Debit
Credit
Record issuance of bonds at discount
Explanation / Answer
Answer to Question 1
Particulars Amount ($) Total liabilities 17,50,000 Short term laibilities 11,50,000 Long term liabilities 6,00,000 Total assets 30,00,000 Equity= Assets - Liabilities 12,50,000 Debt to Asset ratio = Total debt/Total assets 0.5833 Long term debt to equity ratio = Long term debt/Equity 0.4800Related Questions
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