Account questions on liabilities I need help with: 1. Your company issues $500,0
ID: 2544031 • Letter: A
Question
Account questions on liabilities I need help with:
1.
Your company issues $500,000 in bonds at an issue price of 98. The company will record:
a debit of $490,000 to bonds payable, a debit of $10,000 to a contra asset account to reflect the discount, and a credit to cash of $500,000.
a debit of $490,000 to cash, a debit of $10,000 to a contra liability account to reflect the discount, and a credit of $500,000 to bonds payable
none of the above
a debit of $500,000 to bonds payable, a credit of $10,000 to a contra liability account to reflect the discount, and a credit to cash of $490,000.
a debit of $490,000 to cash, a debit of $10,000 to a contra asset account to reflect the discount, and a credit of $500,000 to bonds payable
2.
On January 2012, Lower Under Co announced an offer to issue bonds with a $200,000 par value, a 10% annual contract rate with interest payable semi-annually, and with a three-year life to gain some liquidity given the current market conditions. Interest payments are due on April 1 and October 1 of each year. Lower Under agrees to make six payments over the three years of the bond. Bonds are issue on April 1st 2012, maturity date is April 1, 2015 and the market rate on April 1st 2012 is 8%. Lower Under Co. closes its books annually on December 31 and uses the effective interest method.
Indicate which of the following statements is true:
bonds were issued at par
bonds were issued with a discount equal or smaller than $9,999
bonds were issued with a premium equal or larger than $10,000
bonds were issued with a discount equal or larger than $10,000
bonds were issued with a premium equal or smaller than $9,999
3.
Company A sells a machine to Company B on September 1 for $30,000. The down payment to be paid by Company B is $5,000. Company B must pay monthly minimum payments of $200. 12% interest rate per annum on the unpaid balance is deducted from each payment and the balance is applied to reduce the principal outstanding.
Company B makes the following payments to Company A:
Prepare a partial amortization schedule in order to answer the following question.
In preparing an amortization schedule, what is the balance on the loan to be used on September 1?
$30,000
$5,000
None of the other alternatives are correct
$150,000
$25,000
4.
Company A sells a machine to Company B on September 1 for $30,000. The down payment to be paid by Company B is $5,000. Company B must pay monthly minimum payments of $200. 12% interest rate per annum on the unpaid balance is deducted from each payment and the balance is applied to reduce the principal outstanding.
Company B makes the following payments to Company A:
Prepare a partial amortization schedule in order to answer the following question.
In preparing an amortization schedule, what is the balance at the end of December?
$23,742
$25,000
None of the other alternatives are correct
$24,750
$24,500
October 1 $500 November 1 $500 December 1 $1,000 January 2 $500Explanation / Answer
1.
Bonds have been issued at 98. That means, the bonds have been issued at a discount of 2%.
Face value of bonds = $500,000
Cash received from the issue = $500,000 x 98% = $490,000
Discount on Bonds payable = $500,000 - $490,000 = 410,000
When bonds ae issued at a discount, the journal entry prepared to record the issue includes a debit to cash, a debit to discount on bonds payable, and a credit to bonds payable.
Therefore, the company will record:
a debit of $490,000 to cash, a debit of $10,000 to a contra liability account to reflect the discount, and a credit of $500,000 to bonds payable
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