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Help with Financial Accounting Questions?

1.)The balance sheet for Reading Company reports the following information on July 1, 2010.

READING COMPANY

Balance Sheet (partial)

Long-term liabilities

Bonds payable $2,000,000

Less: Discount on bonds payable 30,000 $1,970,000

Reading decides to redeem these bonds at 102 after paying annual interest. Prepare the journal entry to record the redemption on July 1, 2010.

2.) For each situation prepare the appropriate journal entry for the redemption of the bonds. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

(a) Garland Corporation retired $140,000 face value, 12% bonds on June 30, 2010, at 102. The carrying value of the bonds at the redemption date was $122,500. The bonds pay annual interest, and the interest payment due on June 30, 2010, has been made and recorded.

(b) Hutchinson, Inc., retired $170,000 face value, 12.5% bonds on June 30, 2010, at 98. The carrying value of the bonds at the redemption date was $184,000. The bonds pay annual interest, and the interest payment due on June 30, 2010, has been made and recorded.

3.)McDonald's 2006 financial statements contain the following selected data (in millions).

Current assets $3,625.3 Interest expense $402.0

Total assets 29,023.8 Income taxes 1,293.4

Current liabilities 3,008.1 Net income 3,544.2

Total liabilities 13,565.5

(a) Compute the following values.

Working capital (Round to 1 decimal place, e.g. 212.3.) $

Current ratio (Round to 2 decimal places, e.g. 2.25.) : 1

Debt to total assets ratio (Round to 0 decimal places, e.g. 212.) %

Times interest earned (Round to 2 decimal places, e.g. 21.25.) times

(b) The notes to McDonald's financial statements show that subsequent to 2006 the company will have future minimum lease payments under operating leases of $11,119.8 million. If these assets had been purchased with debt, assets and liabilities would rise by approximately $9,900 million. Recompute the debt to total assets ratio after adjusting for this.

%

4.)Kelso Co. receives $330,000 when it issues a $330,000, 8%, mortgage note payable to finance the construction of a building at December 31, 2010. The terms provide for semiannual installment payments of $21,123 on June 30 and December 31.

Prepare the journal entries to record the mortgage loan and the first two installment payments. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2. Round all answers to 0 decimal places, e.g. 2,510.)

Issuance of Note

First installment payment

Second installment payment

I am an IT major and I haven't had too many problems with this Financial Accounting class I have to take, but this chapter on Bonds is really throwing me for a loop, Thank You in advance.

Update:

I got all of the ones answered except for Problem 2

1 Answer

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  • Sandy
    Lv 7
    1 decade ago
    Favorite Answer

    2.) For each situation prepare the appropriate journal entry for the redemption of the bonds. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

    (a) Garland Corporation retired $140,000 face value, 12% bonds on June 30, 2010, at 102. The carrying value of the bonds at the redemption date was $122,500. The bonds pay annual interest, and the interest payment due on June 30, 2010, has been made and recorded.

    If face value is $140,000 and carrying value is $122,500, the unamortized bonds discount must be $17,500. If you retired the bonds at 102, you paid out $142,800 ($140,000 x 1.02). So:

    Dr Bonds payable $140,000

    Dr Loss on retirement of bonds $20,300

    Cr Cash $142,800

    Cr Discount on bonds payable $17,500

    (b) Hutchinson, Inc., retired $170,000 face value, 12.5% bonds on June 30, 2010, at 98. The carrying value of the bonds at the redemption date was $184,000. The bonds pay annual interest, and the interest payment due on June 30, 2010, has been made and recorded

    The same principle applies as above. Try to work out the amounts yourself.

    Dr Bonds payable $170,000

    Dr Premium on bonds payable $14,000

    Cr Cash $166,600

    Cr Gain on retirement of bonds $17,400

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