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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 bondtransactions
On January1, 2018, Doctors Credit Union (DCU) issued 7%, 20-year bondspayable with face value of $200,000. The bonds pay interest on June 30 andDecember 31.
Requirements
1. If the market interest rate is 5% when DCU issues its bonds, will the bonds bepriced at face value, at a premium, or at a discount? Explain.
2. If the market interest rate is 8% when DCU issues its bonds, will the bonds bepriced at face value, at a premium, or at a discount? Explain.
3. The issue price of the bonds is 93. 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.
Analyzing, journalizing, and reporting bond transactions
Johnny’s Hamburgers issued 8%, 10-year bonds payable at 85 on December 31, 2018.
At December 31, 2020, Johnny reported the bonds payable as follows:
Long-term Liabilities:
Bonds Payable \( 300,000
Less: Discount on Bonds Payable (36,000) \) 264,000
Johnny pays semiannual interest each June 30 and December 31.
Requirements
1.Answer the following questions about Johnny’s bonds payable:
a.What is the maturity value of the bonds?
b.What is the carrying amount of the bonds at December 31, 2020?
c.What is the semiannual cash interest payment on the bonds?
d.How much interest expense should the company record each year?
2. Record the June 30, 2020, semiannual interest payment and amortization of discount.
What is an annuity?
Preparing an amortization schedule and recording mortgages payable
entries
Kellerman Company purchased a building and land with a fair market value of
\(550,000 (building, \)425,000, and land, \(125,000) on January 1, 2018. Kellerman
signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of
\)3,940.37. Round to two decimal places. Explanations are not required for journal
entries.
Requirements
1. Journalize the mortgage payable issuance on January 1, 2018.
2. Prepare an amortization schedule for the first two payments.
3. Journalize the first payment on January 31, 2018.
4. Journalize the second payment on February 28, 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.)
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