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1.McWherter Instruments sold $480 million of 10% bonds, dated January 1, on January 1, 2021. The bonds mature on December 31, 2040 (20 years). For bonds of similar risk and maturity, the market yield was 12%. Interest is paid semiannually on June 30 and December 31. Blanton Technologies, Inc., purchased $480,000 of the bonds as a long-term investment. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds issued on January 1, 2021. 2. Prepare the journal entries to record (a) their issuance by McWherter and (b) Blanton's investment on January 1, 2021. 3. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on June 30, 2021 (at the effective rate) 4. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on December 31, 2021 (at the effective rate).
Complete this question by Required 1 Required 2 Required 3 Required 4 Prepare the journal entries to record (a) their issuance by McWherter and (b) Blanton's investment on January 1, 2021. (If no entry is required for a transaction/event, select "No journal entry required in the first account field. Do not round intermediate calculations. Enter your answers in whole dollars.) Debit Credit No 1 Date General Journal January 01, 2021 Cash Discount on bonds payable Bonds payable 407,777,760 72,222,240 480,000,000 2 480,000 January 01, 2021 Investment in bonds Discount on bonds payable Cash O® 72,222 407.778
points Complete this question by entering your answers in the tabs below. Required 1 Required 2 RegHired 3 Required 4 Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on June 30, 2021 (at the effective rate). (If entry is required for a transaction/event, select "No journal entry required in the first account field. Do not round intermediate calculations. Enter your answers in whole dollars.) No General Journal Credit Date June 30, 2021 Debit 24,466,666 1 Interest expense Discount on bonds payable Interest payable 466,666 24,000,000 2 June 30, 2021 24,000 Cash Discount on bonds payable Interest revenue O® 467 23,533
Required 1 Required 2 Required 3 Retuired 4 Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on December 31, 2021 (at the effective ra (If no entry is required for a transaction/event, select "No journal entry required in the first account field. Do not round intermediate calculations. Enter your answers in whole dollars.) Debit Credit No 1 Date General Journal December 31, 202 Interest expense Discount on bonds payable Interest payable 24,494,666 494,666 24,000,000 2 24,000 December 31, 201 Cash Discount on bonds payable Interest revenue O® 495 x 23,505.
2.Christine opens a retail store. Her sales during the first year are $500,000, of which $120,000 has not been collected at year-end. Her purchases are $200,000. She still owes $30,000 to her suppliers, and at year-end she has $35,000 of inventory on hand. She incurred operating expenses of $170,000. At year-end she has not paid $40,000 of the expenses. Read the requirements Requirements a. and b. Compute her net income from the business assuming she elects the accrual method. Then compute her net income from the business assuming she elects the cash method. a. Requirements - X Accrual method Sales Cost of goods sold Gross profit Operating expenses a. Compute her net income from the business assuming she elects the accrual method. b. Compute her net income from the business assuming she elects the cash method. c. Would paying the $40,000 she owes for operating expenses before year-end change her net income under accrual method of reporting? under the cash method?
3.Required information [The following information applies to the questions displayed below.) A company reports the following beginning inventory and two purchases for the month of January. On January 26, the company sells 420 units. Ending inventory at January 31 totals 170 units. Beginning inventory on January 1 Purchase on January 9 Purchase on January 25 Units 380 90 120 Unit Cost $ 3.70 3.90 4.00 Assume the periodic inventory system is used. Determine the costs assigned to ending inventory when costs are assigned based on the weighted average method. (Round per unit costs to 3 decimal places. Amounts to be deducted should be indicated with a minus sign.)
1.
Solution
1)
| Interest | $ 24,000,000 x 15.04630 (see note 1) | $ 361,111,200 |
| Principal | $ 480,000,000 x 0.09722 (see note 2) | $ 46,665,600 |
| Present value of bonds | Total | $ 407,776,800 |
Note 1:
Interest calculation = $ 480,000,000 x 10% x (6/12) = $ 24,000,000
Present value of an ordinary annuity of $1: n = 40, i = 6% (PVA of $1) = 15.04630
Note 2:
Present value of $1: n = 40, i = 6% (PV of $1) = 0.09722
2) Bonds will be issued at discount because the present value of inflows is less than the face value. The Discount on bonds account should be amortized to interest expense over the life of the bond. The amortization will cause the bond value to increase from $ 407,777,760 on January 1, 2021 to $ 480,000,000 just prior to maturing of bond on December 31,2040
a) Journal entry for Issuance of bonds
| Date | Journal | Debit | Credit |
| Jan 1, 2021 | Cash | $ 407,777,760 | |
| Discount on bonds (Balancing Fig.) | $ 72,222,240 | ||
| Bonds Payable | $ 480,000,000 | ||
| (Being bonds issued by McWherter at present value of bonds) |
b) Journal entry for Blanton's Investment
| Date | Journal | Debit($) | Credit($) |
| Jan 1, 2021 | Investment in bonds | 480,000 | |
| Discount on bond investment (Balancing Fig.) | 72,222 | ||
| Cash | 407,778 | ||
| (Being $400,000 bonds purchased which is 0.1% of the total value of bonds issued ) |
3) We record interest expense at effective rate of interest which is the market rate of interest. Here it is 6% for each semi - annual period. However the corporation must make an interest payment of 5% per semi annual period.The difference between the above two amounts will be the amortization.
Journal entry to record interest expense on June 30, 2021
a)
| Date | Journal | Debit($) | Credit($) |
| June 30, 2021 | Interest Expense | 24,466,666 | |
| Discount on bonds (Balancing Fig.) | 466,666 | ||
| Cash | 24,000,000 | ||
| (Being interest paid at 10% for 6 months i.e,at 5% and interest expense charged at market yield , difference used to write off the discount on bonds ) |
b)
| Date | Journal | Debit($) | Credit($) |
| June 30, 2021 | Cash ( 5% of 480,000) | 24,000 | |
| Discount on bond investment (Balancing Fig.) | 467 | ||
| Interest Revenue ( 6% of 407,778 ) | 24,467 | ||
| (Being interest received at 10% for 6 months i.e,at 5% and interest revenue realized at market yield , difference used to write off the discount on bonds ) |
4)
a)
| Date | Journal | Debit($) | Credit($) |
| December 31, 2021 | Interest Expense | 24,494,666 | |
| Discount on bonds (Balancing Fig.) | 494,666 | ||
| Cash ( 5% x $ 480,000,000) | 24,000,000 | ||
| (Being interest paid at 10% for 6 months i.e,at 5% and interest expense charged at market yield , difference used to write off the discount on bonds ) |
b)
| Date | Journal | Debit($) | Credit($) |
| December 31, 2021 | Cash ( 5% of 480,000) | 24,000 | |
| Discount on bond investment (Balancing Fig.) | 495 | ||
| Interest Revenue | 24,495 | ||
| (Being interest received at 10% for 6 months i.e,at 5% and interest revenue realized at market yield , difference used to write off the discount on bonds ) |
2.
a. Accrual method
| Sales | 500,000 |
| cost of goods sold (see working) | (165,000) |
| Gross profit | 335,000 |
| operating expenses | (170,000) |
| net income | 165,000 |
working;
cost of goods sold =purchases - inventory in hand =>$200,000-35,000 =>$165,000.
b. cash method;
| sales ($500,000-120,000 not collected) | 380,000 |
| less; cost of goods sold (200,000 purchases - 30,000 not paid) | (170,000) |
| gross profit | 210,000 |
| operating expenses (170,000 -40,000 not paid) | (130,000) |
| net income | 80,000 |
c. Paying $40,000 will not change her net income under accrual method (since it already expenses it irrespective of cash payment).
paying $40,000 will change her net income under cash method . (the net income will reduce by $40,000 paid now).
3.please see the attached file.complet solution.
