Chapter 12: 6TI (page 639)
Payne Corporation has the folowing accounts as of December 31, 2018:
Total Assets $60,000
Total Liabilities 20,000
Total Equity 40,000
Compute the debt to equity ratio at December 31,2018.
The debt-equity ratio of the Payne Corporation is 0.5:1
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Analyzing and journalizing bond transactions
On January 1, 2018, Educators Credit Union (ECU) issued 8%, 20-year bonds payablewith face value of $1,000,000. These bonds pay interest on June 30 and December 31.The issue price of the bonds is 109.Journalize the following bond transactions:
a. Issuance of the bonds on January 1, 2018.
b. Payment of interest and amortization on June 30, 2018.
c. Payment of interest and amortization on December 31, 2018.
d. Retirement of the bond at maturity on December 31, 2037, assuming the lastinterest payment has already been recorded.
Reporting liabilities
At December 31, MediStat Precision Instruments owes \(52,000 on Accounts
Payable, Salaries Payable of \)12,000, and Income Tax Payable of \(10,000. MediStat
also has \)300,000 of Bonds Payable that were issued at face value that require
payment of a \(35,000 installment next year and the remainder in later years. The
bonds payable require an annual interest payment of \)4,000, and MediStat still
owes this interest for the current year. Report MediStat’s liabilities on its classified
balance sheet on December 31, 2018.
Journalizing bond transactions including retirement at maturity
McQueen Company issued a $100,000, 7.5%, 10-year bond payable. Journalize
the following
transactions for McQueen Company, and include an explanation for each
entry:
a. Issuance of the bond payable at face value on January 1, 2018.
b. Payment of semiannual cash interest on July 1, 2018.
c. Payment of the bond payable at maturity, assuming the last interest
payment had
already been recorded. (Give the date.)
Determining the present value of bonds payable and journalizingusing the effective-interest amortization methodBrad Nelson, Inc. issued \(600,000 of 7%, six-year bonds payable on January 1, 2018.
The market interest rate at the date of issuance was 6%, and the bonds pay interestsemiannually.
Learning Objectives 2, 3, 4
3. June 30, 2018, InterestExpense \)25,200
Learning Objectives 2, 3, 4
June 30, 2018, Interest Expense$37,750
C H A P T E R 1 2
Requirements
1. How much cash did the company receive upon issuance of the bonds payable?(Round to the nearest dollar.)
2. Prepare an amortization table for the bond using the effective-interest method,through the first two interest payments (Round to the nearest dollar.)
3. Journalize the issuance of the bonds on January 1, 2018, and the first and secondpayments of the semiannual interest amount and amortization of the bonds onJune 30, 2018, and December 31, 2018. Explanations are not required.
Determining the present value of bonds payable and journalizing using the effective-interest amortization method
Sleep Well, Inc. is authorized to issue 9%, 10-year bonds payable. On January 1, 2018, when the market interest rate is 10%, the company issues $500,000 of the bonds. The bonds pay interest semiannually.
Requirements
1. How much cash did the company receive upon issuance of the bonds payable? (Round to the nearest dollar.)
2. Prepare an amortization table for the bond using the effective-interest method, through the first two interest payments. (Round to the nearest dollar.)
3. Journalize the issuance of the bonds on January 1, 2018, and the first and second payment of the semiannual interest amount and amortization of the bonds on June 30, 2018, and December 31, 2018. Explanations are not required.
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