Question

In: Accounting

Remember to show your work if an answer requires a mathematical solution 18. On January 1,...

Remember to show your work if an answer requires a mathematical solution

18. On January 1, Bixby Machine signed a $210,000, 6%, 30-year mortgage that requires semiannual payments of $7,585 on June 30 and December 31 of each year. What is the correct journal entry for recording the second semiannual payment (round interest calculation to the nearest dollar)?
19. On January 1, $500,000 of 8%, 10-year bonds were sold for $530,000. The bonds require semiannual interest payments on June 30 and December 31. What is the correct entry for recording the June 30 interest payment on the bonds?
20. Motor Works, Inc. has declared a $20,000 cash dividend to shareholders. The company has 5,000 shares of $15-par, 10% preferred stock and 10,000 shares of $20-par common stock. The preferred stock is non-cumulative. How much will the preferred and common stockholders receive on the date of payment?
21. Allied Industries, Inc. has 250,000 shares of $7-par common stock outstanding. They have declared a 7% stock dividend. The current market price of the common stock is $11/share. What is the amount that will be credited to Paid-in Capital in Excess of Par Common Stock on the date of declaration?

Solutions

Expert Solution

Solution 18:

Interest payment in first installment = $210,000 *6%*6/12 = $6,300

Principal reduction in first payment = $7,585 - $6,300 = $1,285

Loan balance after first payment = $210,000 - $1,285 = $208,715

Journal Entries
Date Particulars Debit Credit
31-Dec Interest expense Dr ($208,715*6%*6/12) $6,261.00
Mortgage payable Dr $1,324.00
        To Cash $7,585.00
(To record second installment payment)

Solution 19:

Journal Entries
Date Particulars Debit Credit
30-Jun Interest expense Dr $18,500.00
Premium on bond payable Dr ($30,000/20) $1,500.00
        To Cash ($500,000*4%) $20,000.00
(To record semiannual interest payment and premium amortization)

Solution 20:

Dividend to preferred shareholders = 5000*$15*10% = $7,500

Dividend to common shareholders = $20,000 - $7,500 = $12,500

Solution 21:

Amount that will be credited to Paid-in Capital in Excess of Par Common Stock on the date of declaration = 250000*7%* ($11-$7)

= $70,000


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