Question

Problem 2 (10 points) On January 1, 2009, a company borrowed $70,000 cash by signing a 7 % installment note that is to be repaid in 10 annual end-of-year payments of $9,100. The first payment is due on December 31, 2009. Prepare the journal entries to record the first and second installment payments. Problem 3 (20 points) On January 1, 2009 a company issued 10 % , 10-year bonds payable with a par value of $720,000. The bonds pay interest on July 1 and January 1. The bonds were issued for $817,860 cash, which provided the holders an annual yield of 8%. Prepare the journal entry to record the issuance of the bonds and first semiannual interest payment, assuming it uses the straight-line method of amortization. Problem 4 (20 points) York's outstanding stock consist of 80,000 shares of non-cumulative 7.5 % preferred stock with a $5 pa value and also 200,000 shares of common stock with a $1 par value. During its first four years of operation the corporation declared and paid the following total cash dividend: 2013. $20,000 $15,000 2014 $200,000 2015. 2016 $300,000

Answer 1

Ans 2 (A) Date Beginning Balance Interest Payment Ending Balance (B) = (A) x 7% (C) (A) + (B)-(C) Dec 31, 2009 $70,000 $4,900 $9,100 $65,800 Dec 31, 2010 $65,800 $4,606 $9,100 $61,306 Journal Entry Date Account Title Debit Credit Dec 31, 2009 Notes Payable $4,200 Interest Expense $4,900 Cash $9,100 (To record interest expense and repayment of notes payable) Dec 31, 2010 Notes Payable $4,494 Interest Expense $4,606 Cash $9,100 (To record interest expense and repayment of notes payable)

Ans 3 20 Bond is a fixed income security in which issuer promises pay a series of interest payment and repay the principle on maturity to the investor. In straight line amortization, the premium received or discount given on issue of bond is amortized over the bond period maturity on straight line basis. Formula is (Discount / Premium Amount) divided by bond period. Face Value $7,20,000 Coupon Rate 10% Market Rate 8% period (10 x 2] Sales Proceeds $8,17,860 Premium on Bond $97,860 [$817860-$720000] Interest payment $36,000 [$720000 x 10%/21 Amortisation of Premium $4,893 [$97860/20] Journal Entry Date Account Title Debit Credit Jan 1, 2009 Cash $8,17,860 Premium on Bond Payable $97,860 Bond Payable $7,20,000 (To record issuance of bond at premium) July 1, 2009 Interest Expense $31,107 Premium on Bond Payable $4,893 Cash $36,000 (To record interest payment and premium amortisation)