Assets Cash $500,000 Accounts Receivable 700,000 Inventory 300,000 Property, Pla
ID: 2525506 • Letter: A
Question
Assets
Cash $500,000
Accounts Receivable 700,000
Inventory 300,000
Property, Plant & Equipment 900,000
Accumulated Depreciation (100,000) 800,000
Total Assets $2,300,000
Liabilities & Equity
Accounts Payable $300,000
Notes Payable 1,000,000
Common Stock 500,000
Retained Earnings 500,000
Total Liabilities & Equity $2,300,000
Journal Entries for January 2013
Transaction 1: Services Provided for Cash
Description: Receives $155,000 cash from customers for programming services it has provided.
Journal Entry: Dr. Cr.
Cash 155,000
Sales 155,000
Transaction 2: Receipt of Cash on Account
Description: Receives $28,000 in cash from customers who had been billed for services.
Journal Entry: Dr. Cr.
Cash 28,000
Accounts Receivable 28,000
Transaction 3: Cost Flow Assumption: LIFO
Description: Recorded $45,000 in cost of goods sold under the LIFO cost flow assumption.
Journal Entry: Dr. Cr.
Cost of Goods Sold 45,000
Inventory 45,000
Transaction 4: Recording Depreciation Expense
Description: Recorded depreciation expense under the straight-line method.
Journal Entry: Dr. Cr.
Depreciation Expense 9,000
Accumulated Depreciation 9,000
Transaction 5: Sale of Plant Asset
Description: Sale of plant asset for cash. The cash received was equal to the book value.
Journal Entry: Dr. Cr.
Cash 3,000
Accumulated Depreciation 16,000
Equipment 19,000
Transaction 6: Gain on Sale of Plant Asset
Description: Sale of plant asset for cash. The cash received was $2,000 more than the book value resulting in a gain.
Journal Entry: Dr. Cr.
Cash 5,000
Accumulated Depreciation 16,000
Gain 2,000
Equipment 19,000
Transaction 7: Loss on Sale of Plant Asset
Description: Sale of plant asset for cash. The cash received was $500 less than the book value resulting in a loss.
Journal Entry: Dr. Cr.
Cash 2,500
Loss 500
Accumulated Depreciation 13,000
Equipment 16,000
Transaction 8: Note Given to Borrow from Bank
Description: Borrowed $2,000 cash with a 60-day, 12%, $2,000 note.
Journal Entry: Dr. Cr.
Cash 2,000
Notes Payable 2,000
Transaction 9: Payment of Note
Description: Paid the principal and interest on the note in Transaction 8.
Journal Entry: Dr. Cr.
Notes Payable 2,000
Interest Expense 40
Cash 2,040
Transaction 10: Bond Issue
Description: Issued a $100,000 Par Value Bond at a Discount
Journal Entry: Dr. Cr.
Cash 96,454
Bonds Payable 96,454
Transaction 11: Effective Interest Amortization
Description: Recorded bond interest expense under the effective interest method.
Journal Entry: Dr. Cr.
Bond Interest Expense 4,823
Bonds Payable 823
Cash 4,000
Transaction 12: Issuing Par Value Stock at a Premium
Description: Issued common stock and received cash of $50,000 in excess of par value.
Journal Entry: Dr. Cr.
Cash 350,000
Common Stock , $10 Par Value 300,000
Paid-in Capital in Excess of Par Value, Common Stock 50,000
Transaction 13: Dividend
Description: The corporation pays a dividend of $3,800 in cash to the stockholders of Softbyte.
Journal Entry: Dr. Cr.
Dividends 3,800
Cash 3,800
The following information is used to answer question 13 to 16:
Bonds: $3,000,000 Par Value
Semiannual Interest Payments
Three-Year Life
Annual Contract Rate: 12%
Annual Market Rate: 10%
13. What is the price of the bond?
A. $3,152,270.76
B. $3,187,305.54
C. $3,215,852.37
D. $3,330,744.36
14. What is the amount of the bond premium?
A. $330,744.36
B. $187,305.54
C. $152,270.76
D. $215,852.37
15. What is the semi-annual cash payment to the bondholder?
A. $150,000
B. $160,000
C. $170,000
D. $180,000
16. What is the total amount of interest expense over the life of the bond?
A. $927,729.24
B. $945,756.32
C. $955,798.51
D. $963,877.98
Explanation / Answer
Answers
Period Ending
Semi Annual cash payments [3000000 x 6%] (A)
Interest expense [B = C x 5%]
Bond premium amortised (C=A - B)
Carrying Value of Bond (D=D-C)
$ 1,52,270.76 [Answer 14]
$ 31,52,270.76 [Answer 13]
1
$ 1,80,000.00 [Answer 15]
$ 1,57,613.54
$ 22,386.46
$ 31,29,884.30
2
$ 1,80,000.00
$ 1,56,494.21
$ 23,505.79
$ 31,06,378.51
3
$ 1,80,000.00
$ 1,55,318.93
$ 24,681.07
$ 30,81,697.44
4
$ 1,80,000.00
$ 1,54,084.87
$ 25,915.13
$ 30,55,782.31
5
$ 1,80,000.00
$ 1,52,789.12
$ 27,210.88
$ 30,28,571.43
6
$ 1,80,000.00
$ 1,51,428.57
$ 28,571.43
$ 30,00,000.00
TOTAL Interest expense
$ 9,27,729.24 [Answer 16]
The price of the bond is $3,152,270.76 because as shown in above amortisation schedule, this price will lead to $3,000,000 par value after 3 years of its life.
Price of Bond – Par Value of bond = 3152270.76 – 3000000 = $152,270.76
$3,000,000 x 12% x 6months/12 months] = $180,000
As calculated in the table as total interest expense $927,729.24
Period Ending
Semi Annual cash payments [3000000 x 6%] (A)
Interest expense [B = C x 5%]
Bond premium amortised (C=A - B)
Carrying Value of Bond (D=D-C)
$ 1,52,270.76 [Answer 14]
$ 31,52,270.76 [Answer 13]
1
$ 1,80,000.00 [Answer 15]
$ 1,57,613.54
$ 22,386.46
$ 31,29,884.30
2
$ 1,80,000.00
$ 1,56,494.21
$ 23,505.79
$ 31,06,378.51
3
$ 1,80,000.00
$ 1,55,318.93
$ 24,681.07
$ 30,81,697.44
4
$ 1,80,000.00
$ 1,54,084.87
$ 25,915.13
$ 30,55,782.31
5
$ 1,80,000.00
$ 1,52,789.12
$ 27,210.88
$ 30,28,571.43
6
$ 1,80,000.00
$ 1,51,428.57
$ 28,571.43
$ 30,00,000.00
TOTAL Interest expense
$ 9,27,729.24 [Answer 16]