Question

Question #2 Mickey and Minnie were in a partnership. They had income of $25,000. Mickey received a salary of $11,000. Minnie was given interest of 10% on her capital account of $200,000. Provide a schedule showing how much each person's capital account increased or decreased. Question #3 Bo-Bo, Inc. sold bonds at 105. 100 bonds were issued. The market interest rate was 8.9%. The face interest rate was 9.3% Create the entry. .....

Answer 1

Answer to Question No. 2

Schedule of Mickey's Capital account
Particulars	Amount ($)
Salary received by Mickie	11,000
The Salary given be credited to Mickey's Capital account
Increase in Mickeys's Capital account	11,000
Schedule of Minnie's Capital account
Particulars	Amount ($)
Capital Balance	200,000
Interest of 10% on Capital	20,000
(200,000 X 10%)
The Interest on capital given will be credited to Minnie's Capital account
Increase in Minnie's Capital account	20,000

Answer to Question No.3

Proceeds from the Sale of Bonds	$10,500
(100 X 105)
Note: It is assumed that the bonds are issued at par. Hence, the journal entry will be:
Cash a/c		Dr	$10,500
To Bonds Payable a/c				$10,500

Payment of Interest
The Company is obliged to pay the face interest rate which comes attached to the bond to the investors. It is irrelevant of the market fluctuations.
Hence, here the company should pay the face interest rate of 9.3% attached to the bond to the investors.
The Journal entry will be:
Interest on Bonds a/c ($10,500 X 9.3%)	Dr	$977
To Interest on Bonds payable or Cash a/c			$977