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Transaction / Adjustment - Assignment Example

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The issued shares are considered within the treasury share (treasury stock) accounts whereas the outstanding shares are considered within the outstanding stock account that leads to the difference between the…
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Transaction / Adjustment
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Finance and Accounting Answer 1 Assets Liabilities Transaction Adjustment Current Asset Noncurrent Asset Current Liability Noncurrent Liability
Owners Equity
Net Income
a.
Bonds payable with a face amount of $15,000 are issued at par.
Cash+ 15000
Bonds + 15000
b.
At the end of December the company accrues the interest that is payable on the bonds issued in (a)
Accrued bond interest
+450
Bond interest -450
c.
On Mar. 1 the company pays the interest on the bonds
675
( interest paid)
Accrued bond interest
-450
Bond interest
-225
d
Bonds payable with a face amount of $10,000 are issued at a price of 99.
+9900
(Bonds payable at discount 99%)
-100
(discount on bond payable)
+10000
(bonds)
-100
(bond discount)
e
Of the proceeds from the bonds issued in part d, $7,000 is used to purchase land for future expansion
-7000
( cash decreased for purchase of land)
+7000
(land purchased)
f
Because of warranty claims, finished goods inventories costing $200 is sent to customers to replace defective products
Inventory -200
-200
( cost against warranty claims)
-200
(Warranty expense)
g
The company borrowed $18,000 for 3 months at a 10% (annual) interest rate) from a bank. The bank made the loan on a discount basis
Cash
+17550
+17550
+18000
(payment of loan)
(-450 discount)
h
A long-term bond with principal of $25,000 will become due within the current year
-25000
(cash)
+25000
(long term bond due)
-25000
( bonds payable)
i
At the end of the month, the company recognizes its rent obligation of $4000 which it has not yet paid.
+4000
(rent recognized not paid)
-4000
(rent)
j
In the next month the company pays both the current month’s rent of $4000 and pays the previous month’s rent which it had accrued
-8000
(cash for previous month’s rent)
-4000
(rent for previous months)
-4000
( current rent and previous month’s rent)
Answer 2
a. accounting entry for the issuance of the bonds =
Assets
Liabilities
Owners’ Equity
Net Income
Revenues
Expenses
Cash
+188,2000
Discount on the bond
+118,000
Bond face value
+2,000,000
Discount on bond
-118,000
b. Annual interest expense = face value of bonds * coupon rate + (discount on bond / no. of years)
= 2,000,000* 0.1 + (118000/10) = $ 200000 + $11800 = $211800
c. accounting entry for the payment of the interest
Assets
Liabilities
Owners’ Equity
Net Income
Revenues
Expenses
Cash
-200000
Discount on bond payable
11800
-211800
Debit
Credit
Cash
200000
Discount on bond
11800
Bond value on interest
211800
Answer 3
Common stock, $5 par value, 2,000,000 shares authorized, 1,400,000 shares issued, 1,250,000 shares outstanding
$ ???
Answer a)
Calculation of dollar amount:
No. of share issued * par value of bond
1,400,000* $5= $7000000
Answer b)
Cash dividends are paid on the basis of outstanding shares i.e. no. of outstanding shares* per share value.
1,250,000 * $0.15= $ 187500
Answer c)
The issued shares are considered within the treasury share (treasury stock) accounts whereas the outstanding shares are considered within the outstanding stock account that leads to the difference between the two.
Bibliography
Needeles, B, Powers, M., & Crosson, S. (2010). Principles of accounting. Stamford: Cengage Learning. Read More
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