Multiple choice questions (1 point each) Select the one, best answer:
1. On December 1, Nautilus Corporation borrowed $90,000 from a bank and signed a 10%, 90-day note payable in the amount of $90,000. The December 31 adjusting entry will be:
a Debit Interest Expense $750 and credit Notes Payable $750.
b Debit Interest Expense $750 and credit Interest Payable $750.
c Debit Discount on Notes Payable $1,500 and credit Interest Payable $1,500.
d Debit Interest Expense $750 and credit Cash $750.
2. On December 1, year 1, Newton Corporation incurs a 15-year $300,000 mortgage liability in conjunction with the acquisition of an office building. This mortgage is payable in monthly installments of $3,600, which include interest computed at the rate of 12% per year. The first monthly payment is made on December 31, year 1. The portion of the second monthly payment made on January 31, year 2, which represents repayment of principal is:
3. On April 1, year 1, Plymouth Corporation issues $50 million of 10%, 20-year bonds payable at par. Interest on the bonds is payable semiannually each April 1 and October 1. The journal entry to record the first cash payment to bondholders on October 1, year 1, will include:
a A credit to Cash of $5,000,000.
b A debit to Bonds payable of $2,500,000.
c A debit to Interest Expense of $2,500,000
d A credit to Interest Payable of $2,500,000.
4. On March 1, year 1, Cornish Corporation issues $30 million of 10%, 20-year bonds payable at par. Interest on the bonds is payable semiannually each March 1 and September 1. The adjustment necessary at December 31, year 1 (if any), related to this bond issue involves:
a Recognition of interest expense of $1,000,000.
b Recognition of interest expense of $2,500,000.
c Payment of cash of $1,000,000.
d There is no adjustment necessary.
Problem (6 points)
Part I On January 1, a company issues bonds with a par value of $300,000. The bonds mature in 5 years, and pay 8% annual interest, payable each June 30 and December 31. On the issue date, the market rate of interest for the bonds is 10%. Compute the price of the bonds on their issue date. The following information is taken from present value tables:
Part II . On August 1, a company issues bonds with a par value of $600,000. The bonds mature in 10 years, and pay 6% annual interest, payable each February 1 and August 1. The bonds sold at $632,000. The company uses the straight-line method of amortizing bond premiums. The company's year-end is December 31. Prepare the general journal entry to record the interest accrued at December 31.
Cash Paid in Year 1 $900,000
Monthly Interest $150,000
Accrued Interest on Dec. 31 $300,000
Total Interest Expense for Year 1 $1,200,000
Nature Corporation had these stock transactions during the current year.
Jan 10 Issued 10,000 shares of common stock on par$2 for $5
Feb 28 1,000 shares of $2 common stock are issued in exchange for attorney services relating to the formation of the corporation for a value of $3,750.
Jul 30 Paid a cash dividend declared in June of $10,000 to stockholders
a. Record the three general journal entries to record these transactions.
Nature Corporation also engaged in the following treasury stock transactions during the current year:
Aug. 25 Purchased 4,000 shares of treasury stock at $50 per share
Oct. 10 Reissued 1,500 shares of the treasury stock acquired on August 25 at a price of $58 per share.
Dec. 15 Reissued 1,000 shares of treasury stock at a price of $46 per share.
b. Record the three general journal entries to record these treasury stock transactions.