11. The journal entry a company records for the issuance of bonds when the contr
ID: 2413357 • Letter: 1
Question
11. The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate would be a. debit Bonds Payable, credit Cash b. debit Cash and Discount on Bonds Payable, credit Bonds Payable c. debit Cash, credit Premium on Bonds Payable and Bonds Payable d. debit Cash, credit Bonds Payable 12. XYZ Corp. is considering issuing bonds. Please choose the one statement below that is not an advantage of issuing bonds instead of common stock? a. tax savings result b. income to common shareholders may increase c. earnings per share on common stock may be lower d. stockholder control is not affectedExplanation / Answer
Answer to Question 11.
Option c is Correct.
When the Contract Rate is greater than the Market Rate, the bonds are issued at Premium. The Journal entry to record the issuance of Bonds will be:
Cash XXX
Premium on Bonds Payable XXX
Bonds Payable XXX
Answer to Question 12.
Option b is Correct.
The issuance of Bonds will incur an liability i n form of interest payment which will decrease income available for distribution to Common Shareholders.
Answer to Question 13.
Option c is Correct.
Par Value of Bonds = $400,000
Semi-annual Interest Payment = $400,000 * 8% * 6/12 = $16,000
No. of semi-annual Interest Payment = 20 years * 2 = 40
Maturity Value of Bonds = $400,000
Therefore, Willam Perry Inc. must pay $400,000 at maturity and 40 semi-annual interest payment of $16,000.
Answer to Question 14.
Option d is Correct.
Issuance Value of Bonds = $200,000 * 98% = $196,000
Discount on Bonds Payable = $200,000 * 2% = $4,000
Discount on Bonds Payable to be amortized semi-annually = $4,000 * 1/20 * 6/12 = $100
Semi-annual Interest Payment = $200,000 * 6% * 6/12 = $6,000
The Journal entry to record the payment of semi-annual interest on Bonds will be:
Interest Expense 6,100
Unamortized Bonds Discount 100
Cash 6,100
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.