Transaction / Adjustment - Assignment Example

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.