ch13_15_6e_spe - Practice Exam Chapters 13-15 Practice...

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Practice Exam, Chapters 13-15 Practice Exam, Chapters 13-15 Solutions Problem I 1. Prepare the journal entry for the issuance of the note by Shea Industries. Cash .............................................. 480,000 Notes payable ............................ 480,000 2. Prepare the appropriate adjusting entry for the note by Shea Industries on December 31, 2011. Interest expense ($480,000 x 12% x 3 / 12 ) 14,400 Interest payable ......................... 14,400 3. Prepare the journal entry for the payment of the note by Shea at maturity. Interest expense ($480,000 x 12% x 4 / 12 ) 19,200 Interest payable (from adjusting entry) 14,400 Notes payable (face amount) ............ 480,000 Cash (total) ................................. 513,600
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Problem II 1. Determine the price of the bonds at January 1, 2011. Interest $5,500,000 x 11.46992 (from Table 2) = $63,084,560 n=20, i=6% Principal $100,000,000 x 0.31180 (from Table 4) = 31,180,000 n=20, i=6% Present value (price) of the bonds $94,264,560 2. Prepare the journal entry to record their issuance by Kelly Industries on January 1, 2011. Cash (price determined above) ............ 94,264,560 Discount on bonds (difference) ........ 5,735,440 Bonds payable (face value) .......... 100,000,000 3. Prepare the journal entry to record interest on June 30, 2011 (at the effective rate). Interest expense (6% x $94,264,560). 5,655,874 Discount on bonds payable (difference) 155,874 Cash (5.5% x $100,000,000) .......... 5,500,000 4. Prepare the journal entry to record interest on December 31, 2011 (at the effective rate).
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