Question

51. On January 1, a company issues bonds dated January 1 with a par value of $580,000. The bonds mature in 5 years. The contract rate is 6%, and interest is paid semiannually on June 30 and December 31. The market rate is 7% and the bonds are sold for $555,871. The journal entry to record the second interest payment using the effective interest method of amortization is:

• Debit Interest Expense $15,344.52; debit Discount on Bonds Payable $2,055.48; credit Cash $17,400.00.

• Debit Interest Expense $15,344.52; debit Premium on Bonds Payable $2,055.48; credit Cash $17,400.00.

• Debit Interest Expense $19,527.42; credit Discount on Bonds Payable $2,127.42; credit Cash $17,400.00.

• Debit Interest Payable $17,400.00; credit Cash $17,400.00.

• Debit Interest Expense $19,455.48; credit Discount on Bonds Payable $2,055.48; credit Cash $17,400.00.

58. Sweet Company’s outstanding stock consists of 1,800 shares of cumulative 5% preferred stock with a $100 par value and 11,800 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.

	Dividend Declared
year 1	$	3,800
year 2	$	6,200
year 3	$	41,000

The amount of dividends paid to preferred and common shareholders in year 3 is:

• $41,000 preferred; $0 common.

• $17,000 preferred; $24,000 common.

• $0 preferred; $41,000 common.

• $9,000 preferred; $32,000 common.

• $27,000 preferred; $14,000 common.

62. Marwick Corporation issues 12%, 5 year bonds with a par value of $1,030,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%. What is the bond's issue (selling) price, assuming the following Present Value factors:

n=		i=			Present Value of an Annuity			Present value of $1
5		12	%			3.6048		0.5674
10		6	%			7.3601		0.5584
5		10	%			3.7908		0.6209
10		5	%			7.7217		0.6139

• $819,244

• $1,030,000

• $1,109,518

• $1,507,201

• $552,799

65. Eastline Corporation had 11,500 shares of $5 par value common stock outstanding when the board of directors declared a stock dividend of 3,795 shares. At the time of the stock dividend, the market value per share was $15. The entry to record this dividend is:

• Debit Common Stock Dividend Distributable $56,925; credit Retained Earnings $56,925.

• Debit Retained Earnings $56,925; credit Common Stock Dividend Distributable $56,925.

• No entry is needed.

• Debit Retained Earnings $56,925; credit Common Stock Dividend Distributable $18,975; credit Paid-In Capital in Excess of Par Value, Common Stock $37,950.

• Debit Retained Earnings $18,975; credit Common Stock Dividend Distributable $18,975.

Answer 1

Q51)	interest expense			Debit	19527
	discount on bonds payable			Credit		2127
	cash			Credit		17400
	answer-debit interest expense $19,527.42 ;credit discount on bonds
	payable $2,127.42; credit cash $17,400
Q58)	divdiend to preferred = 1800*100*5%
			9000
			preferred	common
	year 1 arrear		5200
	year 2 arrear		2800
	year 3		9000	24000
			17000	24000
	answer 17000 preferred and 24000 common

(note there will be slight difference in issue price calculation ,kindly use the factors as given
inn your question to get exact answer)
	Bond characterstics				Amount
1-a)	Principal				1,030,000
	interest				61,800
	Market interest rate				5%
	periods to maturity				10
	issue price				1,109,518	answer
	Calculation of bond issue price
	Where
	i=	5.00%
	t=	10
	principal		*	PV of $1 at 5% for 10 yrs =
	1,030,000		*	0.61391		=	632327
	interest		*	PV of ordinary annuity at 5%=
	61800		*	7.72173		=	477203
	bond issue price						1109530
		Answer )	1,109,518

Q65)	Retained earnings (3795*15)				56925
	Common stock dividend distributable					18975
	paid in capital in excess of par					37950
	Debit retained earnings $56,925 ; credit common stock dividend
	distributable $18975 ; credit paid in capital in excess of par value ,c0mmon stock
	$37,950