Chapter 12: Q7RQ (page 654)
When does a premium on bonds payable occur?
The stated interest rate is an interest that the issuer of the bonds provides.
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Journalizing liability transactions and reporting them on the balance
sheet
The following transactions of Johnson Pharmacies occurred during 2018 and 2019:
2018
Mar. 1 Borrowed \(450,000 from Coconut Creek Bank. The 15-year, 5% note requires
payments due annually, on March 1. Each payment consists of \)30,000 principal
plus one year’s interest.
Dec. 1 Mortgaged the warehouse for \(250,000 cash with Saputo Bank. The mortgage
requires monthly payments of \)8,000. The interest rate on the note is 12% and
accrues monthly. The first payment is due on January 1, 2019.
31 Recorded interest accrued on the Saputo Bank note.
31 Recorded interest accrued on the Coconut Creek Bank note.
2019
Jan. 1 Paid Saputo Bank monthly mortgage payment.
Feb. 1 Paid Saputo Bank monthly mortgage payment.
Mar. 1 Paid Saputo Bank monthly mortgage payment.
1 Paid first installment on note due to Coconut Creek Bank.
Requirements
1. Journalize the transactions in the Johnson Pharmacies general journal. Round to
the nearest dollar. Explanations are not required.
2. Prepare the liabilities section of the balance sheet for Johnson Pharmacies on
March 1, 2019 after all the journal entries are recorded.
Bond prices depend on the market rate of interest, stated rate of interest,and time.
Requirements
1. Compute the price of the following 8% bonds of Country Telecom.
a. \(100,000 issued at 75.25
b. \)100,000 issued at 103.50
c. \(100,000 issued at 94.50
d. \)100,000 issued at 103.25
2. Which bond will Country Telecom have to pay the most to retire at maturity?
Explain your answer.
Preparing the liabilities section of the balance sheet
Luxury Suites Hotels includes the following selected accounts in its general ledger at
December 31, 2018:
Notes Payable (long-term) \( 200,000 Accounts Payable \) 33,000
Bonds Payable (due 2022) 450,000 Discount on Bonds Payable 13,500
Interest Payable (due next year) 1,000 Salaries Payable 2,600
Estimated Warranty Payable 1,300 Sales Tax Payable 400
Prepare the liabilities section of Luxury Suites’s balance sheet at December 31, 2018.
Bond prices depend on the market rate of interest, stated rate ofinterest,and time.
Requirements
1. Compute the price of the following 8% bonds of Country Telecom.
a. \(100,000 issued at 75.25
b. \)100,000 issued at 103.50
c. \(100,000 issued at 94.50
d. \)100,000 issued at 103.25
2. Which bond will Country Telecom have to pay the most to retire at maturity?Explain your answer.
Computing the debt to equity ratio
Jackson Corporation has the following amounts as of December 31, 2018.
Total assets $ 55,250
Total liabilities 22,750
Total equity 32,500
Compute the debt to equity ratio on December 31, 2018.
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