Question

Adonis Corporation issued 10-year, 11% bonds with a par value of $270,000. Interest is paid semiannually. The market rate on the issue date was 10%. Adonis received $286,827 in cash proceeds. Which of the following statements is true?

a) Adonis must pay $286,827 at maturity and no interest payments.
b) Adonis must pay $270,000 at maturity and no interest payments.
c) Adonis must pay $270,000 at maturity plus 20 interest payments of $13,500 each.
d) Adonis must pay $286,827 at maturity plus 20 interest payments of $14,850 each.
e) Adonis must pay $270,000 at maturity plus 20 interest payments of $14,850 each.

Mayan Company had net income of $33,120. The weighted-average common shares outstanding were 9,600. The company declared a $4,300 dividend on its noncumulative, nonparticipating preferred stock. There were no other stock transactions. The company's earnings per share is:

a) $3.65
b) $2.75
c) $3.45
d) $3.90
e) $3.00

A company issued 260 shares of $100 par value common stock for $31,000 cash. The total amount of paid-in capital in excess of par is:

a) $100
b) $2600
c) $5000
d) 26000
e) 31000

On September 1, Ziegler Corporation had 68,000 shares of $5 par value common stock, and $204,000 of retained earnings. On that date, when the market price of the stock is $15 per share, the corporation issues a 2-for-1 stock split. The general journal entry to record this transaction is:

a)Debit Retained Earnings $1,020,000; credit Common Stock Split Distributable $1,020,000.
b) Debit Retained Earnings $1,020,000; credit Common Stock $1,020,000.
c)Debit Retained Earnings $340,000; credit Common Stock $340,000.
d) Debit Retained Earnings $340,000; credit Stock Split Payable $340,000.
e) No entry is made for this transaction.

A machine with a cost of $174,000, accumulated depreciation of $107,000, and current year depreciation expense of $28,000 is sold for $57,600 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:

a)$49,400.
b)$9,400.
c)$28,000.
d)$21,400.
e)$57,600.

Answer 1

1) Answer.

Adonis Corporation must pay $270,000 at maturity plus 20 interest payments of
$14,850 each.

The par value is the amount that must be paid at maturity. The par value is also the value that the interest payments are calculated on. The bonds would pay annual interest of $270,000 x 0.11 = $29,700; since this is paid semiannually, it would amount to $14,850 for 20 semiannual payments over the 10-year period.

The market rate and proceeds from issue don't factor in the repayment; they only are adjustments to the issue price based on comparisons to similar bonds so that the bonds would have comparable value to investors at the time of issue.

2)

Mayan Company had net income of $33,120. The weighted-average common shares outstanding were 9,600. The company declared a $4,300 dividend on its noncumulative, nonparticipating preferred stock. There were no other stock transactions. The company's earnings per share is:

a) $3.65
b) $2.75
c) $3.45
d) $3.90
e) $3.00

As we know the EPS is calculated only on Common stock hence in order to find out net earnings for common stock, we can use following calculation.

Net Earnings; $33,120 (given)

(Less) Divided declared on preferred stock.  $4,300 (given)

Net earnings for common stock = $28,820.

Now to find out EPS apply formula = Net Earnings/ Total Number of Shares.

Therefore $28,820/9,600

= $3.002

* Clarifications, We know that preferred stock has priority over common stock for dividends hence we have deducted the dividend declared on preferred stock.

3) A company issued 260 shares of $100 par value common stock for $31,000 cash. The total amount of paid-in capital in excess of par is:

a) $100
b) $2600
c) $5000
d) 26000
e) 31000

Here we know that par value is always calculated at Face Value. In above question the Face value is clearly mentioned as $100 per share.

Hence to state the calculation:

260(Number of stock issued) X $100 (Value per stock) = $26,000

Therefore the excess amoout over par value is = $31,000 (-) $26,000 = c)$5,000 (option c)