intemeditate acc.exam1
On October 1, 2020 Macklin Corporation issued 5%, 10-year bonds with a face value of $6000000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.The entry to record the issuance of the bonds would include a credit of
($6000000 × 1.04) - $6000000 = $240000 premium on Bonds Payable
Jump Corporation has $3000000 of short-term debt it expects to retire with proceeds from the sale of 85000 shares of common stock. There is no contractual agreement to retire the debt with the stock sale proceeds. If the stock is sold for $25 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities?
$0, No contractual agreement to retire the debt with stock proceeds.
Bargain Surplus made cash sales during the month of October of $375000. The sales are subject to a 6% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions?
$375000 × 0.06 = $22500. Credit Sales Taxes Payable for $22500.
Pontchartrain Company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. The company uses effective-interest amortization. Interest expense reported on the 2017 income statement will total
$1,568,498. Interest expense for the first 6 month period from January 1 - June 30 is (Carrying amount of bonds, $19,604,145 X 8% X 6/12) = $784,166. The new carrying value for the bonds is [Carrying amount of bonds (original), $19,604,145 + (Interest expense, $784,166 - $780,000 or ($20,000,000 x 7.8% x 6/12), Cash Interest Paid)] = $19,608,311. Interest expense for the second six months is ($19,608,311 X .8% X 6/12) = $784,332. Total interest expense for 2017 is (January 1 - June 30 Interest, $784,166 + July 1 - December 31 Interest, $784,332) = $1,568,498.
Myers Company acquired a 60% interest in Gannon Corporation on December 31, 2020 for $1775000. During 2021, Gannon had net income of $1000000 and paid cash dividends of $250000. At December 31, 2021, the balance in the investment account should be
$1775000 + ($1000000 × 0.60) - ($250000 × 0.60) = $2225000.
Slack Inc. borrowed $400000 on April 1. The note requires interest at 12% and principal to be paid in one year. How much interest is recognized for the period from April 1 to December 31?
$400000 × 0.12 × 9/12 = $36000.
Blanco Company purchased 200 of the 1000 outstanding shares of Darby Company's common stock for $600000 on January 2, 2021. During 2021, Darby Company declared dividends of $100000 and reported earnings for the year of $400000.If Blanco Company uses the equity method of accounting for its investment in Darby Company, its Equity Investments (Darby) account at December 31, 2021 should be
$600000 + ($400000 × 0.20) - ($100000 × 0.20) = $660000.
Everhart Company issues $25000000, 6%, 5-year bonds dated January 1, 2020 on January 1, 2020. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue?
($25000000 × 0.78120) + ($750000 × 8.75206) = $26094045.
On its December 31, 2020 balance sheet, Emig Corp. reported bonds payable of $6000000. The bonds had been issued at par. On January 2, 2021, Emig retired $3000000 of the outstanding bonds at par plus a call premium of $70000. What amount should Emig report in its 2021 income statement as loss on extinguishment of debt (ignore taxes)?
($3000000 + $70000) - ($6000000) × 1/2) = $70000.
On October 1, 2020 Bartley Corporation issued 5%, 10-year bonds with a face value of $8000000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.The entry to record the issuance of the bonds would include a
($8000000 × 1.04) - $8000000 = $320000 credit premium on Bonds payable
Venible Newspapers sold 6000 of annual subscriptions at $150 each on June 1. How much unearned revenue will exist as of December 31?
(6000 × $150) × 5/12 = $375000.
A company issues $15000000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14703108. Using effective-interest amortization, how much interest expense will be recognized in 2020?
1.(14703108*.04)-(15000000*.039)= 3124 2.14703108+3124= 14706232 3.($14703108 × 0.04) + 14706232 × 0.04) = $1176373.
Craig borrowed $700000 on October 1, 2020 and is required to pay $720000 on March 1, 2021. What amount is the note payable recorded at on October 1, 2020 and how much interest is recognized from October 1 to December 31, 2020?
720000 and $12000.
Ferrone Company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Ferrone uses effective-interest amortization. What amount of interest expense will Ferrone record for the June 30, 2017 payment?
Correct! Interest expense for the first six months is (Bond carrying amount, $9,802,072 x 6/12 x 8% Yield rate) = $392,083.
On June 30, 2017, Prouty Co. had outstanding 9%, $5,000,000 face amount, 10-year bonds that pay interest semi-annually on June 30 and December 31. The unamortized balance in the bond discount account on June 30, 2017 was $200,000. On June 30, 2017, Prouty acquired all of these bonds at 101 and retired them. What amount of gain or loss would Prouty record on this early extinguishment of debt?
Correct! The bonds' net carrying amount is (Face amount of bonds, $5,000,000 - Unamortized bond discount, $200,000) = Carrying amount of bonds, $4,800,000. The loss on extinguishment is: Retirement amount, ($5,000,000 X 1.01) - Carrying amount of bonds, $4,800,000 = $250,000.
On June 30, 2017, Baker Co. had outstanding 8%, $6,000,000 face amount, 15-year bonds maturing on June 30, 2027. Interest is payable on June 30 and December 31. The unamortized balance in the bond discount account on June 30, 2017 was $210,000. On June 30, 2017, Baker acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt?
Correct! The bonds' net carrying amount used to calculate the gain or loss on extinguishment is (Face amount of bonds, $6,000,000 - Bond discount, $210,000) = $5,790,000.
On January 1, 2017, Kimbrough Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Kimbrough uses the effective-interest method of amortizing bond discount. At December 31, 2017, Kimbrough should report unamortized bond discount of
Correct! The discount on bonds payable is recorded at (Face Value of Bonds, $5,000,000 - Cash Proceeds from Bonds or Carrying Amount, $4,695,000) = $305,000 at issuance. The amortization of discount in 2017 is [Cash Interest Payment, $5,000,000 x 9% or $450,000 - (Carrying Amount or Face Value for Bonds, $4,695,000 X 10%)] =$19,500 leaving a balance of: Discount at Issuance, $305,000 - Amortization of Discount, $19,500 = $285,500.
The selling price of a bond is the sum of the present values of the principal and the periodic interest payments. The present values are determined by discounting using the
Correct! The market rate is used to discount the cash flows in determining the selling price (proceeds) or the present value of a bond.
On October 1, 2020 Macklin Corporation issued 5%, 10-year bonds with a face value of $6000000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.Bond interest expense reported on the December 31, 2020 income statement of Macklin Corporation would be
[($6000000 × 0.05) × 3/12] - [($240000 ÷ 10) × 3/12] = $69000.
On October 1, 2020 Bartley Corporation issued 5%, 10-year bonds with a face value of $8000000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.Bond interest expense reported on the December 31, 2020 income statement of Bartley Corporation would be
[($8000000 × 0.05) × 3/12] - [($320000 ÷ 10) × 3/12] = $92000.
On January 1, 2017, Trinity Company loaned $901,560 to Litton Industries in exchange for a 3 year, zero-interest-bearing note with a face amount, $1,200,000. The prevailing rate of interest for a loan of this type is 10%. The adjusting journal entry made by Litton at December 31, 2017 with regard to the note will include
a credit to Discount on Notes Payable for $90,156. Correct! The adjusting entry made at December 31, 2017 debits Interest Expense and credits Discount on Notes Payable for (Bond carrying amount, $901,560 X Prevailing interest rate, 10%) = $90,156.
Carr Corporation retires its $500000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $518725. The entry to record the redemption will include a
debit of $18725 to Premium on Bonds Payable. $518725 - $500000 = $18725 premium.
If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will
exceed what it would have been had the effective-interest method of amortization been used.
If a bond sold at 97, the market rate was:
greater than the stated rate. Correct! If a bond was sold at 97, it sold at a discount (97% of face value), which occurs when the market rate is greater than the stated rate.
When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be
increased by accrued interest from May 1 to June 1.
Under the effective interest method, interest expense:
is the same total amount as straight-line interest expense over the term of the bonds.
Stonehenge, Inc. issued bonds with a maturity amount of $5,000,000 and a maturity eight years from date of issue. If the bonds were issued at a premium, this indicates that
the stated rate of interest exceeded the market rate.
