In: Accounting
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?
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