PA10-6 (Supplement 10A) Recording Bond Issue, Interest Payments (Straight-Line Amortization), and Early Bond Retirement [LO 10-S1]

On January 1, 2018, Loop Raceway issued 540 bonds, each with a face value of $1,000, a stated interest rate of 6 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 7 percent, so the total proceeds from the bond issue were $525,829. Loop uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the final year.

Required:

1. Prepare a bond amortization schedule.

2-5. Prepare the journal entries to record the bond issue, the interest payments on December 31, 2018 and 2019, the interest and face value payment on December 31, 2020 and the bond retirement. Assume the bonds are retired on January 1, 2020, at a price of 97.

Question2:

elow are account balances of Nile’Stones Shop, for the period ending 30th June 2020:

The following are transactions and additional information for Nile’Stones Shop for the month of June 2020 that have not been incorporated into those balances:

1. Collected cash $1,900 from credit customers.

2. Paid the creditors $2,600 of the amount owed on account.

3. The owner withdrew $1,000 from the business.

4. Paid all the accrued (utility) payable.

Required:

Based on the Nile’Stones Shop list of account balances at the end of June and incorporating the transactions and additional information above, calculate and itemise (list) the account balances and the amount of each account and the total amount that make up following:

a.     The total assets.

b.     The total liabilities

c.     The Owner’s Equity as at the 30^th June 2020.

On February 1, 2020, Tessa Williams and Audrey Xie formed a partnership in Ontario. Williams contributed $85,000 cash and Xie contributed land valued at $125,000 and a small building valued at $185,000. Also, the partnership assumed responsibility for Xie’s $135,000 long-term note payable associated with the land and building. The partners agreed to share profit or loss as follows: Williams is to receive an annual salary allowance of $95,000, both are to receive an annual interest allowance of 15% of their original capital investments, and any remaining profit or loss is to be shared equally. On November 20, 2020, Williams withdrew cash of $65,000 and Xie withdrew $50,000. After the adjusting entries and the closing entries to the revenue and expense accounts, the Income Summary account had a credit balance of $165,000.

Required:
1. Present general journal entries to record the initial capital investments of the partners, their cash withdrawals, and the December 31 closing of the Income Summary and withdrawals accounts.

2. Determine the balances of the partners’ capital accounts as of the end of 2020.

Complete the projected Balance Sheet and Income Statement for Metza Metza, Inc. at December 31, 2020, given the following information: (you must show step by step calculations ). Also prepare a Common-size analysis of the Balance Sheet and Income Statement. What was their beginning Retained Earnings (actual) account balance at January 1, 2020 given a planned 40% Dividend Payout on December 31, 2020?

Equity Multiplier                                             2.0x

                                    Current Ratio                                                                                          2.5:1

                                    Cash                                                                                                        5.0% of Sales

                                    Quick Asset Ratio                                                                                  1.3:1

                                    Times Interest Earned                                                                           4.0x

                                    Gross Profit Rate                                                                                  40.0% of Sales

                                    Marginal Tax Rate                                                                              50.0%

                                    Operating Expenses                                                                $140,000 + 10.0% of Sales

                                    Accounts Receivable Turnover                                                            6.0x

                                    Accounts Payable                                                                      $60,000.00

                                    Return on Assets                                                                                    3.75%

                                    Common Stock                                                                       $100,000.00

                                    Days Accounts Payable Outstanding                                                 60 days

Note: Operating expenses is comprised of both a fixed expense and a variable expense (referred to as a semi-variable expense)

n January 1, 2020, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,155,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $840,000, retained earnings of $390,000, and a noncontrolling interest fair value of $495,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.

During the next two years, Smashing reported the following:

Net Income   Dividends Declared.   Inventory Purchases from Corgan

Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 40 percent of the current year purchases remain in Smashing's inventory.

1. Prepare the worksheet adjustments for the December 31, 2021, consolidation of Corgan and Smashing.

1. Prepare the worksheet adjustments for the December 31, 2021, consolidation of Corgan and Smashing.

On January 1, 2017, Eagle borrows $25,000 cash by signing a four-year, 7% installment note. The note requires four equal payments of $7,381, consisting of accrued interest and principal on December 31 of each year from 2017 through 2020. (Round your intermediate calculations and final answers to the nearest dollar amount.)

Prepare the journal entries for Eagle to record the loan on January 1, 2017, and the four payments from December 31, 2017, through December 31, 2020.

• Eagle borrows $25,000 cash by signing a four-year, 7% installment note. Record the issuance of the note on January 1, 2017.

• 2

  Record the payment of the first installment payment of interest and principal on December 31, 2017.

• 3

  Record the payment of the second installment payment of interest and principal on December 31, 2018.

• 4

  Record the payment of the third installment payment of interest and principal on December 31, 2019.

• 5

  Record the payment of the fourth installment payment of interest and principal on December 31, 2020.

ABC Moving and Storage acquired a new truck for $100,000, paying $20,000 cash and signing a promissory note for the balance. According to the bill of sale, ABC also paid cash for sales tax of 8%, plus registration, tags and delivery fees of $400. The new truck is estimated to have a 5-year economic life and a residual (salvage) value of $8,400. ABC uses straight-line depreciation. Due to delays, the truck was not placed in service until April 1, 2020. ABC has a December 31 fiscal year.

Question

Refer to problem 1. The promissory note that ABC signed to pay for the balance of the truck is dated April 1, 2020. The interest rate is 6% and payment terms are $40,000 plus interest due on March 31, 2021 and the balance due, plus interest, on March 31, 2022. Prepare journal entries required on December 31, 2020, March 31, 2021, December 31, 2021 and March 31, 2022. Show calculations.