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