Ch. 9 Introduction
In order to expand its business, Mueller Inc. is selling $10 million in common stock. Mueller is utilizing this type of financing:
Equity
_____ financing refers to obtaining investment from stockholders. (Enter only one word.)
Equity
Loans requiring periodic payments of interest and principle are referred to as _____ notes.
installment
A(n) _____ is a contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time. (Enter one word per blank)
lease
A contract in which an owner provides a user the right to use an asset in return for periodic cash payments over a period of time is called a(n)
lease.
The journal entry to recognize the signing of an installment notes payable includes:
Debit cash credit notes payable
Debt is considered a lower cost method of financing than equity because
interest on debt is tax deductible.
Periodic payments on installment notes typically include (Select all that apply.)
a portion that reflects interest. a portion that reduces the outstanding loan balance.
An advantage to financing with debt is that
interest is tax deductible
On December 31, Katie Corp. records a journal entry related to an installment note that includes a debit to interest expense for $4,000, and a debit to notes payable for $9,000. Katie's journal entry should also include a credit to cash for:
$13,000
At the beginning of the year, Petra owes $10,000 on an installment notes payable, which has an interest rate of 6%. At the end of the year, Petra makes a payment of $2,000. After the payment, the carrying value of the installment notes payable will be:
$8,600
In order to expand its business, Mueller Inc. is borrowing $1 million from its bank. Mueller is utilizing this type of financing:
Debt
_____ financing refers to borrowing money from creditors.
Debt
Walker Inc. signs a $24,000 installment note, which requires equal monthly payments of $1,100 over the next two years. The journal entry to recognize the note includes a:
credit to Notes Payable for $24,000
On December 31, Leann Corp. paid $5,120 on an installment note that requires annual payments. The outstanding loan balance on January 1 was $50,000; the effective interest rate is 8%. The journal entry to recognize the payment should include debits to
interest expense for $4,000.notes payable for $1,120.
During the current year, Katie Corp. pays $5,120 on an installment note. The outstanding loan balance at the beginning of the year was $50,000; the effective interest rate is 8%. Which of the statements regarding the installment note balance at the end of the current year is correct?
Balance is $48,880