Table 6 is the stockholders\' equity section of the balance sheet of RedCorporat
ID: 2597669 • Letter: T
Question
Table 6 is the stockholders' equity section of the balance sheet of RedCorporation: Paid-in capital: Preferred stock, 5%, cumulative $50 par, 35,000 shares authorized, 7,000 shares issued 350,000 Common stock, $5 par, 140,000 shares authorized, 50,000 shares issued 250,000 Paid-in capital in excess of par-common Total paid-in capital 202,500 S 802,500 Retained eanings Total stockholders' equity 12) Refer to Table 6. The entry to record Red's purchase of 10,000 shares of its common stock at 75 per 12) share includes a: A) debit to retained earnings for $750,000 B) credit to common stock for $50,000 C) debit to treasury stock for $750,000 D) credit to paid-in capital from treasury stock transaction for $700,000 13) On January 2, 20X5, Lot Corporation issues $200,000 face value, 6% bonds for S196000. It may be 13) derived that the effective rate of interest was: A)less than 6% B) equal to 6% C)more than 6% D) impossible to determine from the given data 14) jones Corporation issues S400000, 10%, 5year bonds at 103. The total interest expense over the life 14) of the bonds is: A) $188,000 B) $40,000 C) $200,000 D) $212,000 Table 1 William Industries needs to raise capital for expansion purposes. Management is considering issuing si,00,000 of 75%. 20-year bonds dated June 1, 20X6, with interest payment dates of December 1 and June 1. William's year-end is December 31. 15) 15) Refer to Table 1. The entry to record the issuance of the bonds on June 1, 20x6, at 96 1/2 includes a A) credit to cash for $37,500 B) credit to interest payable for $75,000 C) credit to bonds payable for $965,000 D) debit to discount on bonds payable for $35,000Explanation / Answer
12) Journal entry to record purchase of common stock:
Treasury stock Dr
To Cash
Option C is correct
13) If the market rate of interest is higher than the coupon rate, the bond shall be issued at discount and vice versa.
Thus if bond is issued at discount the effective rate would be higher than coupon rate.
Option C is correct.
14) Cash jnterest to be paid = $400000 * 10% * 5 = $200000
Premium on issue = $3 * 4000 = $12000
Interest expense = Cash interest - Premium
= $200000 - $12000
= $188000
Option A is correct.
15) Issue price = $1000000 * 96.5%= $965000
The entry would include a credit to bonds payable by $965000
Option C is correct
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