Penn Foster 06101101 Financial Accounting (Part 10)
Base your answers to questions 1–3 on the following information:
On February 1, 2004, the Foose Corporation issued $300,000 worth of bonds; the bonds were dated February 1, 2004, and they sold for $303,600. Maturity date for this issue is February 1, 2024. Interest is to be paid semiannually, on July 31 and January 31. The interest rate is 6% and interest coupons are to be used.
REQUIRED: Using the form provided at the back of this unit, prepare journal entries to record the bond issuance and the interest accrual on July 31. Then, answer questions 1–3. DO NOT send the journal form to us.
1. The journal entry to record the bond issue is
A. Cash 303,600
Bonds Payable 303,600
B. Cash 303,600
Bonds Payable 300,000
Premium on Bonds Payable 3,600
C. Bonds Payable 303,600
Premium on Bonds Payable 3,600
D. Cash 300,000
Bonds Payable 300,000
2. What is the amortization of the bond premium from February 1 to July 31? (Assume that straight-line amortization is used.)
3. The entry to record the accrued interest on July 31, 2004, would be
A. Bond Interest Expense 9,000
Bond Interest Payable 9,000
B. Bond Interest Payable 9,000
Bond Interest Expense 9,000
C. Bond Interest Expense 6,000
Bond Interest Payable 6,000
D. Bond Interest Payable 6,000
Bond Interest Expense 6,000
Base your answers to questions 4–7 on the following information:
The XYZ Company issued the following bonds:
Face Value of Bonds Interest Rate on Bonds, % Issuance Price Time from Issuance Date to Maturity Date
Bond A 800,000 6% 102 20 years 7200
Bond B 800,000 5% 97 20 years
REQUIRED: Using the form provided at the back of this unit, determine the total cost to borrow and the amount of interest expense which should be reported annually for Bond A and Bond B. Then answer questions 4–7. DO NOT send the work form to us.
4. The annual reported interest expense for Bond A is
5. For Bond B, the annual reported interest expense is
6. The total cost to borrow for Bond A amounts to
7. For Bond B, the total cost to borrow is
Base your answers to questions 8–10 on the following information:
Post-Closing Trial Balance
As of December 31, 20X0
Union Bank—Cash Reserved for Bond Interest Payment, 2/1/20X1 1,400
Sinking Fund Cash 1,000
Notes Receivable 18,200
Sinking Fund Securities 12,000
Discount on Mortgage Bonds Payable 2,000
Accumulated Depreciation 40,000
Bond Interest Payable 1,400
Premium on Debenture Bonds Payable 1,000
Salaries Payable 18,000
First Mortgage Bond Payable 80,000
Payroll Taxes Payable 8,000
Capital Stock 76,000
Debenture Bonds Payable 50,000
Accounts Payable 42,000
Retained Earnings 49,000
The amount of retained earnings, $49,000, should be included as part of the Stockholders’ Equity section.
REQUIRED: Using the method illustrated in Figure 6 of your text, prepare a balance sheet as of December 31, 20X0, on the forms provided at the back of this unit. Then answer questions 8–10. DO NOT send the work forms to us.
8. The total current liabilities for the Mahoney Corporation are
9. In which section of the balance sheet should the accumulated depreciation account be shown?
A. Current asset
B. Plant or fixed asset
C. Current liability
D. Deferred charge
10. The Sinking Fund Cash account is properly classified as a
A. current asset.
B. plant asset.
C. current liability.
D. long-term investment.
Base your answer to question 11 on the following information:
The Skies Company reported net income of $58,200 for the year ended December 31, 20X0. An analysis of the firm’s books and related records disclosed that certain adjustments were not made at year end; therefore, reported net income was incorrect. The following errors and omissions were made.
a. Accrued interest earned on investments amounted to $205, but the amount wasn’t recorded.
b. Depreciation of $370 on machinery wasn’t recorded.
c. Rent revenue of $220 was received in advance and credited to the Rent Revenue account.
d. Semiannual bond payable interest of $1,820 was paid, but the amount wasn’t recorded.
e. The unexpired insurance premium at year end totaled $440. The total insurance premium was debited to the Insurance Expense account during the year.
f. Office supplies expense for the year amounted to $690. The firm debits an asset account whenever office supplies are purchased. The entry for supplies used must be made at year end.
REQUIRED: Prepare a statement for the year ended December 31, 20X0, to show the corrected net income, taking into account the adjustments listed. Use the form at the back of this unit. Then answer question 11. DO NOT send your work form to us.
11. The corrected net income for the year, after adjustments, would be
Base your answer to question 12 on the following information:
The account balances for the Sterling Company are as follows:
a. Marketable Securities $100,000
b. Bonds Payable, due 1/1/20X8 525,000
c. Cash 100,000
d. Equipment 350,000
e. Mortgage Payable, due 7/1/20X9 750,000
f. Accumulated Depreciation—Building 200,000
g. Copyright 75,000
h. Capital 800,000
i. Accounts Payable 500,000
j. Accumulated Depreciation—Equipment 100,000
k. Land 200,000
l. Merchandise Inventory 375,000
m. Note Payable, due 6/1/20X2 250,000
n. Building 1,000,000
o. Accounts Receivable 925,000
REQUIRED: Using the given account balances, prepare a balance sheet for the Sterling Company as of December 31, 20X1. A work form is provided at the back of this unit. Be sure all accounts are classified properly, and then answer question 12. DO NOT send your work form to us.
12. The current ratio for the Sterling Company is
A. 1.5 to 1.
B. 2.0 to 1.
C. 2.3 to 1.
D. 3.0 to 1.
13. GM Company bonds, paying 10% interest, are sold at 105. What can you assume about the going rate of interest for bonds similar to GM’s at the time that the GM bonds were issued?
A. The going rate of interest was lower than the stated rate of interest on the bonds.
B. The going rate of interest was equal to the stated rate of interest on the bonds.
C. The going rate of interest was higher than the stated rate of interest on the bonds.
D. Can’t tell without more information.
14. Bonds with a face value of $100,000 and bearing interest at 4% are sold on July 1 at 98 plus accrued interest. The bonds are dated April 1. Semiannual interest is due on October 1 and April 1. The selling price of the bonds is
15. A company’s financial statements for one period can more accurately be compared with those of another period when the accounting principles are
16. The costs of purchasing wastebaskets for the office should not be reported as an asset because of
A. going concern restrictions.
B. lack of substantiating objective evidence.
17. Chemical Bank decides to issue $100,000 of 10-year bonds with a stated interest rate of 10%, compounded semiannually. The market rate for similar bonds is 8%, compounded semiannually. What should the bonds be sold for (to the nearest dollar)? (Refer to present value Tables 1 and 2.)
18. On January 1, Theismann, Inc., a football manufacturer, issues $100,000 of its authorized bonds at 98. The bonds mature in 10 years and contain a call price provision at 105 effective three years after issuance. At the end of three years, Theismann calls the bonds at the call price of 105. The gain or loss on retirement of the bonds is
A. $1,400 gain.
B. $1,400 loss.
C. $6,400 gain.
D. $6,400 loss.
Base your answers to questions 19–20 on the following information:
On 31 March 20X1, John Moresky purchased seven 20-year, $1,000 Unocal bonds which pay 8% interest on January 1 and July 1. In addition to the accrued interest, Moresky paid a $750 premium for the bonds.
19. Moresky’s total outlay for the purchase of the Unocal bonds was
20. What is the total amount of the premium amortized in each six-month period? (Assume that straight-line depreciation is used.)