1.) Cash $105,000

-28 22/50 44%

-2 Debit: Debt Investments for 105,000 Credit: Cash for 105,000

Debt Investments $100,000

Premium on Bond $3,000

Brokerage $2,000

2.) Cash $3,000

Interest Revenue $3,000

-2 Debit account should be “Interest Receivable”, credit account should be “Interest Revenue”.

3.) Interest Accrued $3,000

Profits/Loss $3,000

4.) Cash $3,000

-1 Credit account should be “Interest Receivable”

Interest Revenue $3,000

5.) Cash $108,000

-2 Debit: Cash for 108,000 Credit: Debt Investments for 105,000 Credit: Gain on Sale of Debt Investments for 3,000

Investments in bonds $100,000

Premium on sale of bonds $8,000

-1 Debit account should be “Stock Investments”

6.) Stock Accounts $300,000

Cash $300,000

7.) Cash $30,000

-1 Credit account should be “Stock Investments”

To Dividend A/C $30,000

8.) (No entry required)

-2 Should be 302,000 (300,000 -30,000 + 32,000)

-2 Debit: Stock Investments for 32,000 Credit: Revenue from Stock Investments for 32,000

9.) $300,000

-2 Debit: Stock Investments for 51,000 Credit: Cash for 51,000

10.) Shares Account $50,000

Brokerage $1,000

Cash $5,100

11.) Cash $5,000

-1 Credit account should be “Dividend Revenue”

To dividend Accounts $5,000

12.) No entry

13.) Bank Account $40,000

-2 Debit: Cash for 40,000 Debit: Loss on Sale of Stock Investment for 11,000 Credit: Stock Investment for 51,000

Loss on Sale $10,000

To Stock Accounts $50,000

14.) Investment Accounts $2,000

-2 Debit: Market Adjustment – Trading for 2,000 Credit: Unrealized Gain – Income for 2,000

Revaluation Reserve Accounts $2,000

15.) No entry since the company considers them available for sale securities.

-2 Debit: Unrealized Loss - Equity for 2,000 Credit: Market Adjustment – Available-for-Sale for 2,000

16.) Investments

17.) Profits/Loss

18.) Profits/Loss

19.) Stock

-6

#17) Stockholders’ Equity - Balance Sheet

#18) Other Expenses and Losses – Income Statement

#19) Stockholders’ Equity - Balance Sheet

#21) Other Revenues and Gains – Income Statement

#22) Other Expenses and Losses – Income Statement

#23) Other Revenues and Gains – Income Statement

20.) Investment

21.) Profits/Loss

22.) Profits/Loss

23.) Profits/Loss

24.) Investments

25.) Current Assets

CHAPTER 15 ASSIGNMENTS

-21 29/50 58%

I suggest you re-read this chapter and take notes. Use this assignment to help you learn from your mistakes. Let me know if you need any help.

Instructions: Complete the problems below. This assignment can be completed in either: Microsoft Excel, Word, or hand-written and scanned in PDF format.

PART A. For problems 1-4: On January 1, the company issues $500,000 of ten-year, 8% bonds at 100. The bonds pay interest semi-annually on July 1 and January 1. Prepare journal entries for the following:

1. Issuance of the bonds on January 1.

Jan 1

Cash $500,000

Bonds Payable $500,000

2. Payment of interest on July 1.

July 1

-1 Should debit “interest Expense”

Interest Payable $20,000

Cash $20,000

3. Accrual of January 1 interest on December 31.

Dec 31

Interest Payable $20,000

-2 Should debit “interest Expense” and credit “interest payable”

Cash $20,000

(Being accrual of Jan 1 interest on Dec. 31)

4. Payment of interest on January 1 accrued on December 31.

Dec 31

Interest Payable $20,000

Cash $20,000

(Being payment of interest on Jan 1 accrued on Dec 31)

PART B. For problems 5-6: On January 1, the company issues $200,000 of two-year, 10% bonds at 105. The bonds pay interest annually on January 1.

5. Prepare the journal entry for issuance on January 1.

-2 The bonds are issued at 105, which means that they were sold for 200,000 X 105% = 210,000. Entry should debit cash for 210,000; credit bonds payable for 200,000 and credit premium on bonds payable for 10,000.

Jan 1

Cash $200,000

Bonds Payable $200,000

6. Compute the total cost of borrowing for the bonds.

-1 Missed the last step; subtracting the premium (10,000). Total cost = $30,000

$40,000 = 10% * 200,000 * 2yrs

PART C. For problems 7-8: On January 1, the company issues $300,000 in five-year, 5% bonds at 96. The bonds pay interest annually on January 1.

7. Prepare the journal entry for issuance on January 1.

-2 The bonds are issued at 96, which means that they were sold for 300,000 X 96% = 288,000. Entry should debit cash for 288,000 and debit discount on bonds payable for 12,000; credit bonds payable for 300,000.

Jan 1

Cash $300,000

Bonds Payable $300,000

8. Compute the total cost of borrowing for the bonds.

-1 Missed the last step; adding the discount (12,000). Total cost = $87,000

$75,000= 5%*300,000*5yrs

PART D. For problems 9-11: On January 1, the company issues $100,000 in two-year, 8% bonds at 95. The bonds pay interest annually on January 1.

9. Prepare the journal entry assuming retirement at maturity.

Dec 31

Cash $100,000

-2 Retirement of the bonds at maturity is always a debit to Bonds Payable for the face value (100,000) and a credit to cash for the face value (100,000).

Interest Accrued $8,000

To Bank $108,000

(Total cost of the bonds $16,000 = 8%*100,000*2)

10. Prepare the journal entry assuming retirement one year before maturity.

Dec 31

Cash $100,000

-2 Debit bonds payable for 100,000, debit loss on bond 2500; credit discount of bonds payable 2500, credit cash 100,000.

Interest Accrued $8,000

To Bank $108,000

11. Prepare the journal entry assuming the bonds are converted into 10,000 shares of $5-par value common stock at maturity. The fair market value of the stock at the time of the conversion is $85,000.

Dec 31

Cash $100,000

-2 Debit bonds payable for 100,000; credit common stock 50,000, credit paid-in-capital in excess – common stock 50,000

Interest Accrued $8,000

To Share Capital $50,000

To Securities Premium $50,000

To Bank $8,000

PART E. For problems 12-13: On January 1, the company issues a $200,000, 5%, 30-year mortgage note for new land. The terms call for annual payments on January 1 of $13,010.

12. Prepare the journal entry for the issuance of the mortgage.

Jan 1

-2 Debit Cash 200,000, credit mortgage payable 200,000

Land $200,000

To 5% Note $200,000

13. Prepare the journal entry for the accrual of the first payment on December 31.

Dec 31

-2 Debit Interest Expense $10,000 (200,000 X 5%); credit interest payable 10,000.

Interest Payable $13,010

To Accrued Interest $13,010

PART F. For questions 14-15: Interest expense = $3,000.00; Total Assets = $25,000.00; Total Debt = $10,000.00; Net Income = $5,000; Income Taxes = $2,500.00

14. Calculate percentage of debt to total assets

Interest Expense $3,000

Total Assets $25,000

Total Debts $10,000

Net Income $5,000

Income Tax $2,500

40% = Total debts / Total Assets

15. Calculate times interest earned

EBIT/Interest

=(Net Income + Tax)/ Interest

-1 (Net income + interest + tax) Interest = 5000+2500+3000 = 10,500 / 3000 = 3.5 times

= 2.5

PART G. For problems 16-20: Complete the following:

16. The company enters into a capital lease for equipment on January 1. The present value of the payments is $50,000, which is the fair value of the equipment. Prepare the journal entry for the transaction.

-1 Debit Leased Asset-Equipment 50,000; credit lease liability 50,000

Lease A/C Dr $50,000

To Lease Receivable $50,000

17. - 20. List the four conditions that can result in a lease being classified as a capital lease.

(a) If the lease life exceeds 75% of the life of the asset

(b) If there is a transfer of ownership to the lessee at the end of the lease term

(c) If there is an option to purchase the asset at a "bargain price" at the end of the lease term.

(d) If the present value of the lease payments, discounted at an appropriate discount rate, exceeds 90% of the fair market value of the asset.

CHAPTER 16 ASSIGNMENT