anis version 1 Course. ACCOUNTING \" (ACC 12) ame: 1) On 1/1/2017, Air Inc. purc
ID: 2430314 • Letter: A
Question
anis version 1 Course. ACCOUNTING " (ACC 12) ame: 1) On 1/1/2017, Air Inc. purchased a plant for $350,000 by agrecing to pay $122.500 upfront in cash and signing a 30-year mortgage for the difference $227,500, taken ou 5% interest that is payable in $1,100 monthly paymients which includes principal and interest beginning on 1/1/2017. Record the issuing of the mortgage on 1/1/2017 and the first two monthly payments entries (include the table to obtain partial credit) t at 2) K-Tow Corporation issued a $2 Million, 15 years, 4% semiannual bond on January 1, bonds market rate is 6% given that we are using the effective interest method. 2017, The Record the bond issuance entry as well as the first two semiannual table to get partial credit) payments. (include the Lo-Down Corporation issued a $4 Million, 20 year, 10% semiannual bond or January 1, 2017. Assume the market rate is 5% given that we are using the straight line interest method. Record the bond issuance entry as well as the first two semiannual payments. 3) (include the table to get partial credit) Extra Credit: 4) Niebuhr Company issued $500,000 of bonds on January 1, 2017. (a) Prepare the journal entry to record the retirement of the bonds at maturity, assuming the bonds were issued at 100. (b) Prepare the journal entry to record the retirement of the bonds before maturity at 97. Assume the balance in Premium on Bonds Payable is $5,000. (c) Prepare the journal entry to record the retirement of the bonds before maturity at 105. Assume the balance in Premium on Bonds Payable is $5,000. 100 o00POn (h 12Explanation / Answer
Ans:
1.)
On 1/1/2017, Journal entry would be:
Property A/c Dr. $350.000
To Cash A/c $122,500
To Mortgage Payable A/c $227,500
On 1/2/2017: Payment of first Installment:
Mortgage Payable A/c Dr $152
Interest On Mortgage A/c Dr $948
(227,500*5%*1/12)
To Cash A/c $1,100
On 1/3/2017 when second installment is paid:
Mortgage Payable A/c Dr $ 153
Interest On Mortgage A/c Dr $ 947
(227,348*5%*1/12)
To Cash A/c $1,100
2.)
K tow corporation will record folllowing journal entry is its books:
On Bond Issue
Cash A/c Dr $ 2 million
To Bond Payable A/c 2 million
On First Semiannual Payament :
Interest on Bond A/c Dr $40,000
To Cash A/c $40,000
On Second Semiannual Payament :
Interest on Bond A/c Dr $40,000
To Cash A/c $40,000
3.)
Lo-Down Corporation will record folllowing journal entry is its books:
On Bond Issue
Cash A/c Dr $ 4 million
To Bond Payable A/c 4 million
On First Semiannual Payament :
Interest on Bond A/c Dr $200,000
To Cash A/c $200,000
On Second Semiannual Payament :
Interest on Bond A/c Dr $200,000
To Cash A/c $200,000
4.)
a.) When bond retirement is at par:
Bond Payable A/c Dr. $500,000
To Cash A/c $ 500,000
b:) When Bond retirement is at discount:
Bond Payable A/c Dr. $500,000
Premium On Bond Payable A/c $5,000
To Cash A/c $ 485,000
(97*5,000)
To Gain on retiremnet of Bond A/c: $ 20,000
c.) When Bond retirement is at Premium:
Bond Payable A/c Dr. $500,000
Premium On Bond Payable A/c Dr $5,000
Loss on retiremnet of Bond A/c Dr $20,000
To Cash A/c $525,000
(105*5,000)
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