Question 1

Vadercat Limited issued $30 million 7.5 percent, 5 year bonds on October 1, 2018. The market rate of interest on the date of the issue was 8 percent. Interest is payable semi-annually on April 1 and October 1. The company’s year-end is December 31.

Required:

  1. Prepare journal entries to record all transactions during the first year the bonds are outstanding. The company uses the straight-line method of amortizations.
  2. Indicate how the bond obligation would be shown on the company’s year-end statement of financial position.
  3. How much interest expense is shown on the 2018 year end income statement?
  4. How much interest expense will be shown on the 2019 year end income statement?

Question 2

Bella Ltd issued $25,000,000 of bonds on June 1, 2018. The bond issue carries an interest rate of 8.5% and matured June 1, 2028. Interest on the issue is paid on December 1 and June 1. When issued on June 1, market rates had moderated somewhat and the issue was priced to yield 8.0%. Bella has a September 30 year end.

Required:

  1. Prepare all journal entries required to record the bond for the first full calendar year the bonds are outstanding.
  2. Show how all aspects of the bond will be reflected in the 2018 financial statements of Bella Ltd.

 

Question 3

On January 1, 2018, McGriff Corporation issued

$2,000,000, 6%, 5-year bonds dated January 1, 2018, at 98. The bonds pay semi-annual interest on January 1 and July 1. The company uses the straight-line method of amortization and has a calendar year end.

Required

Prepare all the journal entries that McGriff Corporation would make related to this bond issue through January 1, 2019. Be sure to indicate the date on which the entries would be made.

 

Question 4

The adjusted trial balance for Stayner Corporation at the year end of December 31, 2018 contained the following accounts:

Bonds payable, 7%   $500,000

Bond interest payable          20,000

Discount on bonds payable   30,000

Notes payable, 8%, due 2020         80,000

Accounts payable      120,000

Required

(a)      Prepare the long-term liabilities section of the statement of financial position

(b)      Indicate the proper statement of financial position classification for the accounts listed above that do not belong in the long-term liabilities section.

 

Question 7

Id Jit Company’s Shareholders’ Equity section of the balance sheet on December 31, 2018, was as follows: Common stock,

60,000 no par shares issues and outstanding        $1,080,000

Retained earnings                                            1,240,000

Total shareholders’ equity                                 $2,320,000

On January 4, 2019, Id Jit declared and issued a 10% stock dividend, when the shares were selling for $20 per share. Then on March 30, 2019, it declared and issued a 2-for-1 stock split. Profit for 2019 was $190,000 and the company paid $40,000 of dividends during the year

Required

  1. How many shares are outstanding at the 2019 year-end?
  2. What is the book value per share of these shares in the Common Stock account at the 2019 year end?
  3. Develop the Shareholders’ Equity category of Id Jit’s balance sheet as of December 31, 2019.

 

Question 8

Regan, Inc., declared a cash dividend of $40,000 in 2017 when the following shares were outstanding

Common shares, 20,000 shares ……………         $400,000

Preferred shares, $0.60, 2,500 shares…………..         25,000

No dividends were declared or paid during the prior year. Compute the amount of cash that would be paid to each shareholder group under each of the following separate cases,

CASE A–       The preferred shares are noncumulative.

Preferred $____________    Common $____________

 

CASE B–       The preferred shares are cumulative.

Preferred $____________    Common $____________

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