Question

1. On January 1, 2019, Zero Corporation obtained a $52,000, 4-year, 6.5% instalment note payable from Regional Bank. The note requires annual payments consisting of $15,179 ( principal and interest ) beginning on December 31^st, 2019. The December 31^st, 2019 principal balance ( after the first payment ) will be equal to:

1. $27,635
2. $36,821
3. $40,201
4. $48,620

2. ABC Company has the following balance sheet and income statement data at December 31^st, 2019:

Bonds Payable, 8% ( contractual rate and market rate )

maturity date December 31^st, 2023                                                                  $1,200,000

$8 Preferred Shares ( no change during the year )                                              200,000

Common Shares ( no change during the year )                                                 1,000,000

Profit before income tax expense for the year                                                     320,000

Income tax expense for the year                                                                               80,000

Common share dividends paid during the year                                                      60,000

Preferred share dividends paid during the year                                                     16,000

Based on the above data, what is the interest coverage ratio at December 31^st, 2019 ( round to two decimal places )?

1. 5.67
2. 4.33
3. 3.50
4. 3.24

3. Halprin Corporation issues $1,000,000, 4%, 10-year bonds that pay interest annually when the market rate of interest is 6%. What is the issue price of the bonds?

1. $882,826
2. $969,964
3. $852,794
4. $1,000,000

4. Which of the following is a characteristic of a general partnership?

1. The partners have co-ownership of partnership property
2. Partnership profit is taxed as a separate entity
3. The partnership has an unlimited life
4. The partners have limited liability

5. Singer and McMann are partners in a business. Singer’s capital at the beginning of the year was $40,000 and McMann’s was $60,000. They agreed to yearly salaries of $12,000 for Singer and $18,000 for McMann. They each receive 10% interest on their capital balances at the beginning of the year. The remaining profit or loss is allocated on a 3:2 basis between Singer and McMann.

If profit for the year is $30,000, what is the amount allocated to McMann?

1. $20,000
2. $18,600
3. $18,000
4. $17,400

Answer 1

1.)	Note Payable	52,000
	Interest On note payable	3,380	(52,200 x 6.5% )
	Payment allocated to principal	11,799	( 15,179 -3,380 )
	December 31st, 2019 principal balance	$40,201
	Correct answer is option C .
2.)	Profit before income tax	320,000
	Add: Interest on bond	96,000	( 1200000 x 8% )
	Earning before Interest & Tax	416,000
	Interest Coverage ratio	4.33	( 416,000 / 96,000 )
	Correct answer is option B.
3.)	Present Value of Principal repayment	558,390	=1000000*0.55839
	Add: Present value of interest payment	294,404	=1000000*4%*7.36009
	Issue price of Bonds	$ 852,794
	Correct answer is option C.

4.)	In general partnership, the partners have co-ownership of partnership property.
	Correct answer is option A.

5.)		Singer	McMann	Total
	Net profit			30,000
	Less: Salary allowance	12,000	18,000	30,000
	Balance			-
	Less: Interest Allowance	4,000	6,000	10,000
	Balance			-10,000
	Less: Loss sharing	-6,000	-4,000	-10,000
	Balance			-
	Total Allocation $	10,000	20,000	30,000

Correct answer is option A. ( i.e. $ 20,000 ).