Question

1. The journal entry to record the payment at maturity of an interest-bearing note is

A. debit Accounts Payable; credit Cash

B. debit Notes Payable and Interest Receivable; credit Cash

C. debit Notes Payable and Interest Expense; credit Cash

D. debit Cash; credit Notes Payable

2. The entry to record the issuance of common stock at a price above par includes a debit to

A. Common Stock

B. Paid-In Capital in Excess of Par—Common Stock

C. Cash

D. Organizational Expenses

3. If Dakota Company issues 1,500 shares of $6 par common stock for $75,000,

A. Paid-In Capital in Excess of Par will be credited for $9,000

B. Cash will be debited for $66,000

C. Paid-In Capital in Excess of Par will be credited for $66,000

D. Common Stock will be credited for $75,000

4. A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $120. If the corporation issues a 5-for-1 stock split, the par value of the stock after the split will be

A. $60

B. $24

C. $25

D. $5

5. If the market rate of interest is 8%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will be

A. greater than $500,000

B. greater than or less than $500,000, depending on the maturity date of the bonds

C. less than $500,000

D. equal to $500,000

Answer 1

• Answer 1

Correct Answer is Option ‘C’ Notes Payable and Interest Expense are debited while Cash is credited when interest bearing note is paid at maturity.

This is because Notes Payable was earlier been credited as liability which is now paid off. Cash is going out and Interest expense being an expense is debited.

• Answer 2

Correct Answer is Option ‘C’ Cash is debited by the amount of total cash received on issuance.

Common Stock and Excess paid in capital are CREDITED.

• Answer 3

Correct Answer is Option ‘C’ paid in Capital in excess of Par will be credited for $ 66,000

This is because total par value of issue = 1500 shares x $ 6 = $ 9,000

While cash received = $ 75,000

Hence, excess paid in capital = 75000 – 9000 = $ 66,000

• Answer 4

Correct Answer = Option ‘D” $ 5

	Total Common Stock at par	No. of shares	Par Value per share
	[A]	[B]	[C =A/B]
Before Stock Split	$     1,250,000.00	50000	$                   25.00
After Stock Split	$     1,250,000.00	250000	$                     5.00 = ANSWER

• Answer 5

Correct Answer = Option ‘C’ less than $ 500,000

Since Coupon rate of 6% is less than market interest rate of 8%, in order to make it attractive for investors, the bonds will be issued at a DISCOUNT. Hence, the price os issue will be LESS than face value.