Question

Please answer these questions and give an explanation as to the answer:

Question 1

Mayston Co. issued $10,000 shares of $0.01 par value stock for $20 per share. To record this transaction, Mayston will:

Question 2

Suppose a company issues a $200,000, 9% bond, due in 10 years, with interest payable semi-annually. If the market rate for this bond is 10%, for what amount would the company credit Bonds Payable at the time of issuance?

Question 3

On January 1, 2012, Liberty purchases equipment for $70,000. The equipment is expected to produce 10,000 units of output with a residual value of $10,000. Calculate the amount of Accumulated Depreciation that will be reported in the 2014 financial statements using the activity-based method. Actual production in 2012, 2013, and 2014 was 1,000, 1,000, and 2,000, respectively.

Question 4

Gaston Co. reports the following cash activities for the year:

Receive cash from customers	$100,000
Pay cash to purchase building	$90,000
Receive cash from issuance of stock	$50,000
Pay cash for employee salaries	$40,000
Pay cash for dividend to stockholders	$20,000
Receive cash from sale of land	$70,000
Pay cash for repayment of borrowing	$80,000
Receive cash from long-term borrowing	$60,000
Pay cash for purchase of supplies	$30,000

Calculate the amount of financing cash flows?

Answer 1

Answer to Question 1.

To record the transaction, Mayston will increase cash by $200,000 (10,000 * $20), Common Stock by $100 (10,000 * 0.01) and Additional Paid-in Capital – Common Stock by $199,900 (10,000 * $19.99).

Answer to Question 2.

Face value of bonds = $200,000

Annual coupon rate = 9.00%
Semiannual coupon rate = 4.50%
Semiannual coupon = 4.50% * $200,000
Semiannual coupon = $9,000

Annual interest rate = 10.00%
Semiannual interest rate = 5.00%

Time to maturity = 10 years
Semiannual period = 20

Issue price of bonds = $9,000 * PVIFA(5.00%, 20) + $200,000 * PVIF(5.00%, 20)
Issue price of bonds = $9,000 * (1 - (1/1.05)^20) / 0.05 + $200,000 / 1.05^20
Issue price of bonds = $187,538

At the time of issuance of bonds, company will debit cash by $187,538 and discount on bonds payable by $12,462 and credit bonds payable by $200,000.