PLEASE SHOW ALL OF YOUR WORK! 1. NCL Company issued $450,000 of 9%, 20-year bond

ID: 2531367 • Letter: P

Question

PLEASE SHOW ALL OF YOUR WORK! 1. NCL Company issued $450,000 of 9%, 20-year bonds on January 1, 2017, at 102. a. Prepare the journal entry to record the issuance of the bonds. (2 Points) Date Account Title Cr. b. Was the stated rate higher or lower than the market rate? Why or why not? (1 Point) 2. A corporation issued a $50,000, 9% annual rate, 4-month note payable on July 1, If the corporation's year-end is September 30, then the adjusting entry for interest on that date is: (1 Point) Hint: Expenses are DEBITS to increase, Liabilities (payables) are CREDITS to increase a. Interest Payable 1,150 Interest Expense 1,150 b. Interest Expense 1,125 Interest Payable 1,125 c. Interest Payable 1,125 1,125 Interest Expense d. Interest Payable 1,500 1,500 Interest Expense

Explanation / Answer

Answers

Part (a)

Date

Account title

Debit

Credit

Working

01-Jan-17

Cash

$ 459,000

[450000 x 102%]

Bonds Payable

$ 450,000

Premium on Bonds Payable

$ 9,000

[459000 - 450000]

(Bonds issued)

Part (b)

The stated rate is HIGHER than the market rate.
This is because Bonds are issued on PREMIUM, and premium bonds will be accepted if the person to whom it is issued is being paid a higher Interest than market interest.

Note Amount = $50,000
Interest rate = 9%
Annual Interest (12 months) = 50000 x 9% = $4,500

Number of months till September 30 (from Jul 1) = 3 months.

Interest expense TO BE DEBITED for 3 months will be = 4500 x (3 months / 12 months) = $1,125

Hence, the correct option is OPTION -B