Assets Cash $500,000 Accounts Receivable 700,000 Inventory 300,000 Property, Pla
ID: 2525509 • Letter: A
Question
Assets
Cash $500,000
Accounts Receivable 700,000
Inventory 300,000
Property, Plant & Equipment 900,000
Accumulated Depreciation (100,000) 800,000
Total Assets $2,300,000
Liabilities & Equity
Accounts Payable $300,000
Notes Payable 1,000,000
Common Stock 500,000
Retained Earnings 500,000
Total Liabilities & Equity $2,300,000
Journal Entries for January 2013
Transaction 1: Services Provided for Cash
Description: Receives $155,000 cash from customers for programming services it has provided.
Journal Entry: Dr. Cr.
Cash 155,000
Sales 155,000
Transaction 2: Receipt of Cash on Account
Description: Receives $28,000 in cash from customers who had been billed for services.
Journal Entry: Dr. Cr.
Cash 28,000
Accounts Receivable 28,000
Transaction 3: Cost Flow Assumption: LIFO
Description: Recorded $45,000 in cost of goods sold under the LIFO cost flow assumption.
Journal Entry: Dr. Cr.
Cost of Goods Sold 45,000
Inventory 45,000
Transaction 4: Recording Depreciation Expense
Description: Recorded depreciation expense under the straight-line method.
Journal Entry: Dr. Cr.
Depreciation Expense 9,000
Accumulated Depreciation 9,000
Transaction 5: Sale of Plant Asset
Description: Sale of plant asset for cash. The cash received was equal to the book value.
Journal Entry: Dr. Cr.
Cash 3,000
Accumulated Depreciation 16,000
Equipment 19,000
Transaction 6: Gain on Sale of Plant Asset
Description: Sale of plant asset for cash. The cash received was $2,000 more than the book value resulting in a gain.
Journal Entry: Dr. Cr.
Cash 5,000
Accumulated Depreciation 16,000
Gain 2,000
Equipment 19,000
Transaction 7: Loss on Sale of Plant Asset
Description: Sale of plant asset for cash. The cash received was $500 less than the book value resulting in a loss.
Journal Entry: Dr. Cr.
Cash 2,500
Loss 500
Accumulated Depreciation 13,000
Equipment 16,000
Transaction 8: Note Given to Borrow from Bank
Description: Borrowed $2,000 cash with a 60-day, 12%, $2,000 note.
Journal Entry: Dr. Cr.
Cash 2,000
Notes Payable 2,000
Transaction 9: Payment of Note
Description: Paid the principal and interest on the note in Transaction 8.
Journal Entry: Dr. Cr.
Notes Payable 2,000
Interest Expense 40
Cash 2,040
Transaction 10: Bond Issue
Description: Issued a $100,000 Par Value Bond at a Discount
Journal Entry: Dr. Cr.
Cash 96,454
Bonds Payable 96,454
Transaction 11: Effective Interest Amortization
Description: Recorded bond interest expense under the effective interest method.
Journal Entry: Dr. Cr.
Bond Interest Expense 4,823
Bonds Payable 823
Cash 4,000
Transaction 12: Issuing Par Value Stock at a Premium
Description: Issued common stock and received cash of $50,000 in excess of par value.
Journal Entry: Dr. Cr.
Cash 350,000
Common Stock , $10 Par Value 300,000
Paid-in Capital in Excess of Par Value, Common Stock 50,000
Transaction 13: Dividend
Description: The corporation pays a dividend of $3,800 in cash to the stockholders of Softbyte.
Journal Entry: Dr. Cr.
Dividends 3,800
Cash 3,800
The following information is used to answer questions 17 to 20:
Bonds: $1,000,000 Par Value
Semiannual Interest Payments,
Three-Year Life
Annual Contract Rate: 6%
Annual Market Rate: 8%
17. What is the price of the bond?
A. 963,544.12
B. 952,877.65
C. 947,578.63
D. 925,587.96
18. What is the amount of the bond discount?
A. 52,421.37
B. 50,865.35
C. 47,822.45
D. 45,647.24
19. What is the semi-annual cash payment to the bondholder?
A. 25,000
B. 30,000
C. 35,000
D. 40,000
20. What is the interest expense for the second semi-annual payment under the effective interest method?
A. 37,903.15
B. 38,219.27
C. 38,548.04
D. 38,889.96
Explanation / Answer
Answer no. 17:-
The answer is "C. 947,578.63". The same is calculated as follows:-
Since payments are made semi-annually, all the interest rates must be divided by 2. Therefore,
No. of payments = 6 (3 years life with semi-annual payments)
Issue interest rate = 3% every six months
Market Interest rate = 4% every six months
Interest amount at every payment = 1,000,000 * 3% = 30,000
Now, all we have to do to calculte the value of the bond is to calculate the Net Present Vaue of these payments using a discount rate of 4%; s follows:
Thus, the value of the issue is 947,578.63.
Answer no. 18:-
The answer is "A. 52,421.37". This is calculated by deducting the value of the bond calculate in question 17 above (947,578.63) from the face value of the bond (1,000,000)
Answer no. 19:-
The answer is "B. 30,000". Since the payments are made semi-annually, the interest rate is halved. Therefore, the effective interest rate would be 3%, and the interest amount would be 30,000 (1,000,000*3%)
Answer no. 20:-
The answer is "A. 37,903.15".
Effective interest method calculates the interest amount as per the market rate of interest on the market value of the bond on the date of issue. So, in this case, it will be the interest amount on 947,578.63 at the rate of 8%. The effective interest of a semi-annual payment is calculated by dividing the annual effective interest by 2.
Effective annual interest = 947,578.63 * 8% = 75,806.29
Effective interest of semi-annual payments in the first year = 75806.29/2 = 37,903.15
Payment no. Amount Discount Factor (4%) Present Value 1 30000 0.961538462 28846.15385 2 30000 0.924556213 27736.68639 3 30000 0.888996359 26669.89076 4 30000 0.854804191 25644.12573 5 30000 0.821927107 24657.8132 6 1030000 0.790314526 814023.9615 NPV 947578.6314Related Questions
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