Question

In: Accounting

Assets Cash                                        &nb

Assets

Cash                                                                                           $500,000

Accounts Receivable                                                                  700,000                             

Inventory                                                                                     300,000

Property, Plant & Equipment                          900,000

Accumulated Depreciation                          (100,000)              800,000

Total Assets                                                                            $2,300,000

Liabilities & Equity

Accounts Payable                                                                      $300,000

Notes Payable                                                                           1,000,000

Common Stock                                                                            500,000

Retained Earnings                                                                       500,000

Total Liabilities & Equity                                                      $2,300,000

Journal Entries for January 2013

Transaction 1: Services Provided for Cash

Description: Receives $155,000 cash from customers for programming services it has provided.

Journal Entry:                                                                                                          Dr.                              Cr.

Cash                                                                                                                      155,000

            Sales                                                                                                                                              155,000  

Transaction 2: Receipt of Cash on Account

Description: Receives $28,000 in cash from customers who had been billed for services.

Journal Entry:                                                                                                           Dr.                              Cr.

Cash                                                                                                                          28,000                           

          Accounts Receivable                                                                                                                            28,000
          

Transaction 3: Cost Flow Assumption: LIFO

Description: Recorded $45,000 in cost of goods sold under the LIFO cost flow assumption.

Journal Entry:                                                                                                         Dr.                               Cr.

Cost of Goods Sold                                                                                                   45,000

                  Inventory                                                                                                                                    45,000

Transaction 4: Recording Depreciation Expense

Description: Recorded depreciation expense under the straight-line method.

Journal Entry:                                                                                                          Dr.                               Cr.

Depreciation Expense                                                                                               9,000

                  Accumulated Depreciation                                                                                                           9,000

Transaction 5: Sale of Plant Asset

Description: Sale of plant asset for cash. The cash received was equal to the book value.

Journal Entry:                                                                                                    Dr.                                    Cr.

Cash                                                                                                                      3,000

Accumulated Depreciation                                                                                  16,000

                  Equipment                                                                                                                                    19,000

Transaction 6: Gain on Sale of Plant Asset

Description: Sale of plant asset for cash. The cash received was $2,000 more than the book value resulting in a gain.

Journal Entry:                                                                                                        Dr.                                   Cr.

Cash                                                                                                                      5,000

Accumulated Depreciation                                                                                  16,000

                  Gain                                                                                                                                               2,000

                  Equipment                                                                                                                                      19,000

Transaction 7: Loss on Sale of Plant Asset

Description: Sale of plant asset for cash. The cash received was $500 less than the book value resulting in a loss.

Journal Entry:                                                                                                        Dr.                                   Cr.

Cash                                                                                                                         2,500

Loss                                                                                                                            500

Accumulated Depreciation                                                                                   13,000

                  Equipment                                                                                                                                     16,000

Transaction 8: Note Given to Borrow from Bank

Description: Borrowed $2,000 cash with a 60-day, 12%, $2,000 note.

Journal Entry:                                                                                                        Dr.                                    Cr.

Cash                                                                                                                      2,000

                  Notes Payable                                                                                                                                  2,000

Transaction 9: Payment of Note

Description: Paid the principal and interest on the note in Transaction 8.

Journal Entry:                                                                                                        Dr.                                      Cr.

Notes Payable                                                                                                      2,000

Interest Expense                                                                                                        40

                  Cash                                                                                                                                                2,040

Transaction 10: Bond Issue

Description: Issued a $100,000 Par Value Bond at a Discount

Journal Entry:                                                                                                         Dr.                                     Cr.

Cash                                                                                                                     96,454

                  Bonds Payable                                                                                                                                   96,454

Transaction 11: Effective Interest Amortization

Description: Recorded bond interest expense under the effective interest method.

Journal Entry:                                                                                                           Dr.                                      Cr.

Bond Interest Expense                                                                                           4,823

                  Bonds Payable                                                                                                                                     823

                  Cash                                                                                                                                                    4,000

Transaction 12: Issuing Par Value Stock at a Premium

Description: Issued common stock and received cash of $50,000 in excess of par value.

Journal Entry:                                                                                                            Dr.                         Cr.

Cash                                                                                                                       350,000

                  Common Stock , $10 Par Value                                                                                           300,000

                  Paid-in Capital in Excess of Par Value, Common Stock                                                       50,000

Transaction 13: Dividend

Description: The corporation pays a dividend of $3,800 in cash to the stockholders of Softbyte.

Journal Entry:                                                                                                             Dr.                            Cr.

Dividends                                                                                                                    3,800

            Cash                                                                                                                                                  3,800

The following information is used to answer questions 17 to 20:

Bonds: $1,000,000 Par Value
Semiannual Interest Payments,
Three-Year Life

Annual Contract Rate: 6%
Annual Market Rate: 8%

17. What is the price of the bond?

A. 963,544.12

B. 952,877.65

C. 947,578.63

D. 925,587.96

18. What is the amount of the bond discount?

A. 52,421.37

B. 50,865.35

C. 47,822.45

D. 45,647.24

19. What is the semi-annual cash payment to the bondholder?

A. 25,000

B. 30,000

C. 35,000

D. 40,000

20. What is the interest expense for the second semi-annual payment under the effective interest method?

A. 37,903.15

B. 38,219.27

C. 38,548.04

D. 38,889.96

Solutions

Expert Solution

Answer no. 17:-

The answer is "C. 947,578.63". The same is calculated as follows:-

Since payments are made semi-annually, all the interest rates must be divided by 2. Therefore,

No. of payments = 6 (3 years life with semi-annual payments)

Issue interest rate = 3% every six months

Market Interest rate = 4% every six months

Interest amount at every payment = 1,000,000 * 3% = 30,000

Now, all we have to do to calculte the value of the bond is to calculate the Net Present Vaue of these payments using a discount rate of 4%; s follows:

Payment no. Amount Discount Factor (4%) Present Value
1 30000 0.961538462 28846.15385
2 30000 0.924556213 27736.68639
3 30000 0.888996359 26669.89076
4 30000 0.854804191 25644.12573
5 30000 0.821927107 24657.8132
6 1030000 0.790314526 814023.9615
NPV 947578.6314

Thus, the value of the issue is 947,578.63.

Answer no. 18:-

The answer is "A. 52,421.37". This is calculated by deducting the value of the bond calculate in question 17 above (947,578.63) from the face value of the bond (1,000,000)

Answer no. 19:-

The answer is "B. 30,000". Since the payments are made semi-annually, the interest rate is halved. Therefore, the effective interest rate would be 3%, and the interest amount would be 30,000 (1,000,000*3%)

Answer no. 20:-

The answer is "A. 37,903.15".

Effective interest method calculates the interest amount as per the market rate of interest on the market value of the bond on the date of issue. So, in this case, it will be the interest amount on 947,578.63 at the rate of 8%. The effective interest of a semi-annual payment is calculated by dividing the annual effective interest by 2.

Effective annual interest = 947,578.63 * 8% = 75,806.29

Effective interest of semi-annual payments in the first year = 75806.29/2 = 37,903.15

ekkarill92 answered 1 year ago
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