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Chapter 12: Q1TI (page 623)

On January 1, 2018, Fox Corporation signed an \(80,000, four-year, 4% note. The loan required Fox to make payments annually

on December 31 of \)20,000 principal plus interest.

1. Journalize the issuance of the note on January 1, 2018.

2. Journalize the first payment on December 31, 2018.

Short Answer

Expert verified

The amount paid on the first payment of the note payable is $23,200.

Step by step solution

01

Definition of notes payable

The notes payable is a type of long-term liability in which a contract is signed between two parties.

02

Journal entries of notes payable

Date

Particulars

Debit

Credit

January 1, 2018

Cash

$80,000

Notes Payable

$80,000

(Receive cash from notes at 5%)

December 31, 2018

Notes Payable

$20,000

Interest Expense ($80,000 * 4%)

$3,200

Cash

$23,200

(Being first payment of principal plus interest is made)

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Most popular questions from this chapter

Preparing an amortization schedule and recording mortgages payable

entries

Kellerman Company purchased a building and land with a fair market value of

\(550,000 (building, \)425,000, and land, \(125,000) on January 1, 2018. Kellerman

signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of

\)3,940.37. Round to two decimal places. Explanations are not required for journal

entries.

Requirements

1. Journalize the mortgage payable issuance on January 1, 2018.

2. Prepare an amortization schedule for the first two payments.

3. Journalize the first payment on January 31, 2018.

4. Journalize the second payment on February 28, 2018.

Determining bond prices and interest expense

Jones Company is planning to issue $490,000 of 9%, five-year bonds payable to

borrow for a major expansion. The owner, Shane Jones, asks your advice on some

related matters.

Requirements

1. Answer the following questions:

a. At what type of bond price Jones Company will have total interest expense

equal to the cash interest payments?

b. Under which type of bond price will Jones Company鈥檚 total interest expense be

greater than the cash interest payments?

c. If the market interest rate is 12%, what type of bond price can Jones Company

expect for the bonds?

2. Compute the price of the bonds if the bonds are issued at 89.

3. How much will Jones Company pay in interest each year? How much will Jones

Company鈥檚 interest expense be for the first year?

Determining bond prices

Bond prices depend on the market rate of interest, stated rate of interest, and time.

Determine whether the following bonds payable will be issued at face value, at a

premium, or at a discount:

a. The market interest rate is 8%. Idaho issues bonds payable with a stated rate

of 7.75%.

b. Austin issued 9% bonds payable when the market interest rate was 8.25%.

c. Cleveland鈥檚 Cars issued 10% bonds when the market interest rate was 10%.

d. Atlanta鈥檚 Tourism issued bonds payable that pay the stated interest rate of 8.5%. At

issuance, the market interest rate was 10.25%.

Payne Corporation has the folowing accounts as of December 31, 2018:

Total Assets $60,000

Total Liabilities 20,000

Total Equity 40,000

Compute the debt to equity ratio at December 31,2018.

Schmidt Company issued $100,000, 4%, 10-year bonds payable at 98 on January 1, 2018.

6. Journalize the issuance of the bonds payable on January 1, 2018.

7. Journalize the payment of semiannual interest and amortization of the bond discount or premium (using the straight-line

amortization method) on July 1, 2018.

8. Assume the bonds payable was instead issued at 106. Journalize the issuance of the bonds payable and the payment of the

first semiannual interest and amortization of the bond discount or premium.
See all solutions

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