Answer:
This question is incomplete, the options are missing. The options are the following:
a) Highest price; highest total market value
b) Highest total market value; highest price
c) Highest price; lowest liquidity
d) Greatest number of shares outstanding; highest price
And the correct answer is the option B: Highest total market value; highest price.
Explanation:
To begin with, both terms the Dow Jones Averages and the Standard & Poor's are indexes for the respective american stock market in where the better companies of the country are in the list so that why that mostly of them will obviously have the highest total market value and its respectively highest price due to the fact that are the companies that produce more and work better than others and the public buy stocks from them and that makes them richer and richer.
Dodero Company produces a single product which sells for $100 per unit. Fixed expenses total $12,000 per month, and variable expenses are $60 per unit. The company's sales average 500 units per month. Which of the following statements is correct?
a. The company's break-even point is $12,000 per month.
b. The fixed expenses remain constant at $24 per unit for any activity level within the relevant range.
c. The company's contribution margin ratio is 40%.
d. Responses A, B, and C are all correct.
Answer:
c. The company's contribution margin ratio is 40%.
Explanation:
Contribution margin ratio = contribution margin / revenue
contribution margin = total revenue - total variable cost
$100 - $60 = $40
$40 / $100 = 0.4
Breakeven pont = fixed cost / price - variable cost
$12,000 / $100 - $60 = 300
fixed cost per unit decreases as sales increases and decreases as sales decreases
The owners decide to take the company public through an IPO, issuing additional 1 million new shares. Assuming that they successfully complete the IPO, the net income for the next year is estimated to be $6 million. The price of shares is set using average price-earnings ratios for similar businesses of 15. What portion of the company will be owned by the angel investor after the IPO
Answer:
15.79% = 300,000 stocks = $14,210,526
Explanation:
The question is incomplete, you are missing the following:
"The founders and owners of a private company have funded it through the following rounds of investment: Round Source Price Number of Shares Class A Self $1.00 200,000 Class B Angel $1.00 300,000 Class C Venture Capital $1.25 400,000"
total number of outstanding stocks after the IPO = 200,000 + 300,000 + 400,000 + 1,000,000 = 1,900,000
angel investors own 300,000 / 1,900,000 = 0.157895 = 15.79%
price earnings ratio = stock price / earnings per stock
EPS = net income / total outstanding stocks = $6,000,000 / 1,900,000 = $3.1579
15 = stock price / $3.1579
stock price = 15 x $3.1579 = $47.3684
angel investors own 300,000 stocks x $47.3684 = $14,210,526
Vibgyor Inc., a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its cell phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Vibgyor and the software company best referred to as in this scenario?
Answer: b. A Strategic Alliance
Explanation:
A Strategic Alliance refers to two or more entities agreeing to work together and involves them sharing their resources, knowledge, and capabilities to develop a superior product or other objectives that might not be tangible.
The Companies will remain independent while this is done.
The relationship between Vibgyor and the software company can therefore best be referred to as a Strategic Alliance.
On August 1, Batson Company issued a 60-day note with a face amount of $58,800 to Jergens Company for merchandise inventory. (Assume a 360-day year is used for interest calculations.)
a) Determine the proceeds of the note assuming the note carries an interest rate of 10%.
b) Determine the proceeds of the note assuming the note is discounted at 10%.
Answer:
a. $58,800
b. $57,820
Explanation:
Generally, notes are issued on the discounted or face value. It is face value when the price of the note is the same as the face value while it is discounted when the price of the note is lower than the face or par value.
a. Since the note is issued on the face value of $58,800 , it means that the proceed is the same amount. The proceeds from a note that is issued, is that price at which the note is issued.
b. Discount value
= $58,800 × 10% × 60/360
= $980
Proceeds
= Face/par value of the note - Discount value of the note
= $58,800 - $980
= $57,820
Today (year 0), a new 7-megawatt (MW) solar panel farm is constructed at a direct cost of $10 million. The indirect cost of 10% of the direct cost was spent. Four years from today, a smaller 6-MW solar farm will be added to the existing farm. The cost indices of today and after 4 years are 400 and 600 respectively. If the cost-capacity factor is 0.75 for solar panel construction, what is the estimated total capital investment (direct indirect) for the smaller 6-MW farm
Answer:
14.70 m
Explanation:
The computation of estimated total capital investment (direct indirect) for the smaller 6-MW farm is shown below:-
Cost of 6MW plant = Cost of 7MW today × (Index today ÷ Index in past) × (Capacity of 6MW plant ÷ Capacity of 7MW plant )^Cost capacity factor
= = 1.1 × 10m × (600 ÷ 400) × (6 ÷ 7)^0.75
= 14.6985
or
= 14.70 m
So, for computing the cost of 6MW plant we simply applied the above formula.
On January 1, 2017, Sophie's Sunlounge owned 4 tanning beds valued at $20,000. During 2017, Sophie's bought 3 new beds at a total cost of $10 comma 00010,000. At the end of the year, the market value of all of Sophie's beds was $26 comma 00026,000. Calculate Sophie's gross investment and depreciation during 2017. Sophie's gross investment during 2017 was $nothing. Sophie's depreciation during 2017 was $nothing.
Answer:
Net Investment = 4,000
Explanation:
Gross Investment = 10,000
Depreciation = Market Value - Book value
Depreciation =26,000 - 20,000
Depreciation = 6,000
Net Investment = Gross Investment - Depreciation
Net Investment = 10,000 - 6,000
Net Investment = 4,000
NOTE: Gross investment for 2017 will be the 3 new beds that Sophie bought during 2017 at a total cost of 10,000. To calculate Net investment we should calculate depreciation first by deducting book value from market value.
For what types of information would you use the Quick Analysis tool? Why would you choose to use the Quick Analysis tool and what other options would there be to calculate your data besides using this method? Is one method better than the other, or does it depend on what you are working with? Explain.
Answer:
The Quick Analysis Tool (QAT) is a tool found in Microsoft Excel Spreadsheet. It is very useful when dealing with an array of data with multiple cell qualities.The QAT gives one the ability to instantly produce various types of charts, including line and column charts, or add mini graphical representation of the data. Other alternative methods of achieving the above would be to go through the Data Tab on the Excel Ribbon and select the specific actions which one would like to effect.No method is better than the other. It all depends on the nature of work one is working on as well as one's dexterity or proficiency. With a simple array of data, one might find the QAT, which comes suggested as soon as the table with the data is highlighted, easy to use.Cheers!
When you work within an organization youre typically taught to
Correct question;
When you work within an organization, you're typically not taught to
A. follow a supervised plan for managing your time.
B. act as your own supervisor.
C. act in ways that are derived from established procedures
D. identify yourself with your job or position.
Answer:
B. act as your own supervisor.
Explanation:
This is the case in most organisations today, because by providing supervisors for employees, the organization can achieve quality job performance.
Spervisors are needed in order to ensure job tasks are done properly. So as the saying goes, "when one works within an organization, you're typically not taught to act as your own supervisor.
Which of the following statements is false about Activity-based management?
A. While useful, activity-based management and Activity-Based Costing information is not always cost efficient to obtain
B. The information needed for activity-based management is a direct byproduct of Activity-Based Costing
C. Activity-based management is an activity that is similar to Activity-Based Costing but requires a very different set of information
D. Activity-based management is designed to help management know which activities add the most value to goods and services
Answer:
C. Activity-based management is an activity that is similar to Activity-Based Costing but requires a very different set of information
Explanation:
Activity based management is the process by which a business identifies activities that contributes more to profitability of the business. These activities are retained.
While activities whose cost does not justify the profit they generate are discarded.
Activity based costing is used to allocate cost of a product based on level of activity of a particular process.
Activity based management uses information from activity based costing to identify processes that contribute more to profitability.
So the statement - Activity-based management is an activity that is similar to Activity-Based Costing but requires a very different set of information. - Is false
Activity-based management (ABM) is a way of identifying and assessing activities that a firm conducts, as well as doing a value chain analysis or a re-engineering exercise to enhance strategic and operational decisions in an organization, utilizing activity-based costing.
So, option C is correct as this is the only false statement about activity based management.
The other options are incorrect as:
Option A is incorrect as yes activity-based management and activity-based costing are not always cost-efficient.
Option B is incorrect as yes activity-based management and activity-based costing have many similarities but they need different information.
Option D is incorrect as yes activity-based management analysis every good and services provided by company and help organization know which of them add more value to organization.
Thus every statement is correct only statement C is untrue.
For more information about activity-based management refer to the link:
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During the Great Recession, the U.S. budget deficit worsened as tax collections fell and payments to the poor rose. In other words, the deficit worsened as a result of _________ in the federal budget.
A company purchased $270,000 in supplies during the year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. For what amount was the adjusting entry to supplies expense?
Answer:
$260,000
Explanation:
Opening balance = Ending balance - Increase in ending balance
=$66,000 - $10,000
=$56,000
Supplies Expenses = Opening balance + Purchases - Closing balance
=$56,000 + $270,000 - $66,000
=$336,000 - $66,000
=$260,000
Therefore, the amount that will be the adjusting entry to supplies expenses is $260,000
You are interested in purchasing a new automobile that costs $ 38 comma 000. The dealership offers you a special financing rate of 12 % APR (1%) per month for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer's financing deal, then your monthly car payments would be closest to:
Answer:
$1,000.69
Explanation:
For computing the monthly car payment we need to apply the PMT formula i.e to be shown in the attachment below
Provided that
Present value = $38,000
Future value or Face value = $0
NPER = 48 months
RATE = 1%
The formula is shown below:
= PMT(RATE;NPER;-PV;FV;type)
The present value come in negative
So, after applying the above formula, the monthly car payment is $1,000.69
A cafeteria serving line has a coffee urn from which customers serve themselves. Arrivals at the urn follow a Poisson distribution at the rate of 3.0 per minute. In serving themselves, customers take about 14 seconds, exponentially distributed. a. How many customers would you expect to see, on average, at the coffee urn? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Answer: 3 customers.
Explanation:
Given the following :
Arrival rate of customers = 3 customers per minute
Service time = 14 seconds
Then if service time is 14 seconds, the service rate per minute will be 60/14 = 4.29 = 4 (nearest whole number)
Service rate = 4 customers per minute.
Number of customers at coffee urn(Nc) :
Nc = (arrival rate) /(service rate - arrival rate)
Nc = (3) / (4 - 3)
Nc = 3 / 1
Nc = 3
Therefore, average number of customers expected at coffee urn = 3
The Botosan Factory has determined that its budgeted factory overhead budget for the year is $601,880 and budgeted direct labor hours are 367,000. If the actual direct labor hours for the period are 334,000, how much overhead would be allocated to the period
Answer:
Allocated MOH= $541,200
Explanation:
Giving the following information:
Estimated overhead= $601,880
Budgeted direct labor hours= 367,000
The actual direct labor hours for the period are 334,000
First, we need to calculate the predetermined overhead rate:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Predetermined manufacturing overhead rate= 601,880/367,000
Predetermined manufacturing overhead rate= $1.64 per direct labor hour
Now, we can allocate overhead:
Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base
Allocated MOH= 1.64*334,000
Allocated MOH= $541,200
A company's board of directors votes to declare a cash dividend of $1.00 per share of common stock. The company has 20,000 shares authorized, 15,000 issued, and 14,500 shares outstanding. The total amount of the cash dividend is:
Answer:
$14,500
Explanation:
From the above, the below details are given;
Authorized share capital , which represent maximum number of shares that a company is allowed to issue.
Issued shares, which is the number of shares issued by a company including shares purchased and backed by a company(treasury stock).
There is also outstanding shares which is treasury stock less issued shares.
We do also know that treasury stock does not have any right of dividend because the shares are held by the company hence cannot pay dividend to itself.
Therefore, the total amount of the cash dividend is = 14,500 × $1.00
= $14,500
Furniture costing $61,700 is sold at its book value in 2017. Acquisitions of furniture total $50,000 cash, on which no depreciation is necessary because it is acquired at year-end. What is the cash inflow related to the sale of furniture
Answer:
cash inflow = $32,100
Explanation:
there is some information missing:
accumulated depreciation 2016 (furniture) = $9,000depreciation expense 2017 (furniture) = $37,600accumulated depreciation 2017 (furniture) = $17,000we must first determine the book value of the furniture which was sold:
total depreciation related to the sold furniture = $9,000 + $37,600 - $17,000 = $29,600
book value = $61,700 - $29,600 = $32,100
since the furniture was sold at book value, then the cash inflow = $32,100
Cash inflow refers to money being received or earned by the company, while cash outflows refer to money being paid by the company.
Suppose you deposit $ cash into your checking account. By how much will the total money supply increase as a result when the required reserve ratio is 0.0?
Answer:
If the required reserve ratio is 0, that means that the money multiplier will be infinite. I guess the question is incomplete.
I looked for similar questions to fill in the blanks:
If you deposit $2,400 and the required reserve ratio is 0.4, then by how much does the money supply increase?
first we must determine the money multiplier = 1 / required reserve ratio = 1 / 0.4 = 2.5
to determine the total effect on the money supply we just multiply the deposit by the multiplier = $2,400 x 2.5 = $6,000 increase.
Which of the following completes the argument against deregulation of U.S. banks that began with the phrase: "if banks competed to pay higher rates of interest"?
a. they might also compete to make riskier loans, potentially imperiling the safety of the banking system.
b. they might also compete to make less riskier loans, potentially imperiling the U.S consumer's reliance on credit.
c. they will end up playing a large role in setting the regulations that they will follow.
Answer:
A. They might also compete to make riskier loans, potentially imperiling the safety of the banking system.
Explanation:
Banks may compete to make riskier loans if they had to pay higher interest rates, which might jeopardize the stability of the banking system. As a result, choice (A) is the appropriate response.
What is meant by loans?A loan is an act of one or more people, businesses, or other entities lending money to other people, businesses, or other entities. The recipient, or borrower, incurs a debt and is often responsible for both the main amount borrowed as well as interest payments on the debt until it is repaid.
The promissory note or equivalent document used to prove the debt will typically include information such as the principal borrowed amount, the interest rate being charged by the lender, and the due date. The subject asset is temporarily reallocated between the borrower and the lender as part of a loan.
The payment of interest encourages the lender to make the loan.
Hence, option (A) is accurate.
Learn more about loans, from:
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Suppose that purely competitive firms producing cashews discover that P exceeds MC.
a. Is their combined output of cashews too little, too much, or just right to achieve allocative efficiency?
b. In the long run, what will happen to the supply of cashews and the price of cashews?
1. Supply will increase and the price of cashews will increase.
2. Supply will increase and the price of cashews will decrease.
3. Supply will decrease and the price of cashews will decrease.
4. Supply will decrease and the price of cashews will increase.
Answer:
a. Too Little
b. 2. Supply will increase and the price of cashews will decrease.
Explanation:
a. Output is always maximised when Marginal Revenue equals Marginal Cost because at this point it is argued that all resources are being utilised. In a purely competitive market, the Price is equal to the Marginal Revenue. If the price is larger than the Marginal Cost that means that Marginal Revenue is larger than Marginal Cost. The firms are therefore not utilising enough resources to produce as much as they can which should change.
b. In the long run in a purely competitive market, more firms will enter the market as they will see it as a chance to make economic profits. As this happens the Supply will increase due to the larger number of firms and the price will decrease as a result as well.
___, born during the Great depression, grew froma need to understand the entire economy and to provide guidance on how to manage it
Answer:
Macroeconomics.
Explanation:
It is defined to be a branch of economies that studies the behaviour and performance of an economy, this is done by aggregating it, taking a reasonable forecast with its recent happenings, investments and economic rise and falls and also the
Put simply, it focuses on the way the economy performs as a whole in its decision making processes. These variables that are been looked at includes the likes of unemployment, GDP, and inflation. Experts are seen to provide models that are used in explanations on the listed factors in tackling economic imbalance of the said country's economy.
On July 1, 2021, a company loans one of its employees $20,000 and accepts a ten-month, 9% note receivable. Calculate the amount of interest revenue the company will recognize in 2021 and 2022
Answer:
Interest in 2021=900
Interest in 2022=600
Explanation:
Calculatation of the amount of interest revenue the company will recognize in 2021 2022
Month in 2021 - July To December
Interest in 2021 = 20,000*9%*6/12
Interest in 2021=900
Month in 2022 - January To April
Interest in 2022 = 20,000*9%*4/12
Interest in 2022=600
Therefore the amount of interest revenue the company will recognize in 2021 will be 900 while 2022 will be 600
Answer:
2021:900
2022:600
Explanation:
Month in 2021 - July To December
Interest in 2021 = 20,000x0.0%x(6/12)
Interest in 2021=900
Month in 2022 - January To April
Interest in 2022 = 20,000x0.09x(4/12)
Interest in 2022=600
Therefore the answer for 2021 will be 900 and for 2022 will be 600
AgCo sells corn in a perfectly competitive market. Say the current market price for a bushel of corn is $4.00. If AgCo prices at $4.10 per bushel for its corn, a. AgCo will sell less corn than other producers but still earn a reasonable profit. b. AgCo will sell no bushels of corn. c. AgCo's total revenue will increase. d. AgCo will maximize profit at that price.
Answer:
b. AgCo will sell no bushels of corn.
Explanation:
A perfectly competitive market refers to market has many buyers and sellers will all the market selling the undifferentiated product without any difference.
Some of the others attributes of a perfectly competitive market are that buyers and sellers have perfect information about the price of a good, no barriers to entry and exit, similar products are being sold, there are free entry and exit to the market, and all sellers are price takers.
All sellers are price takers implies that the price of good is determined or given by the market. Therefore, any attempt to increase the price beyond the price given by the market will result into a zero sale because the buyers will immediately switch to another seller selling at the market price which lower.
Based on the above explanation, AgCo will sell no bushels of corn because its prices at $4.10 per bushel for its corn is higher than the current market price for a bushel of corn of $4.00.
Dinklage Corp. has 7 million shares of common stock outstanding. The current share price is $68, and the book value per share is $8. The company also has two bond issues outstandingSuppose the most recent dividend was "$3.25" and the dividend growth rate is 5 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 21 percent. What is the company’s WACC?
Answer:
WACC = 15.08%
Explanation:
Some information is missing:
"The first bond issue has a face value of $70 million, a coupon rate of 6 percent, and sells for 97 percent of par. The second issue has a face value of $40 million, a coupon rate of 6.5 percent, and sells for 108 percent of par. The first issue matures in 21 years, the second in 6 years."
In order to calculate WACC we must first determine the YTM and market values of the 2 bonds.
bond 1:
market value = $70,000,000 x 0.97 = $67,900,000
YTM = {4,200,000 + [(70,000,000 - 67,900,000)/21]} / [(70,000,000 + 67,900,000)/2] = 4,300,000 / 68,950,000 = 6.24%
bond 2:
market value = $40,000,000 x 1.08 = $43,200,000
YTM = {2,600,000 + [(40,000,000 - 43,200,000)/6]} / [(40,000,000 + 43,200,000)/2] = 2,066,667 / 41,600,000 = 4.97%
weighted average cost of debt:
total value of debt = $67,900,000 + $43,200,000 = $111,100,000
weighted average cost = [($67,900,000/$111,100,000) x 6.24%] + [($43,200,000/$111,100,000) x 4.97%] = 3.814% + 1.933% = 5.75%
cost of equity (Re):
$68 = ($8 x 1.05) / (Re - 5%)
Re - 5% = $8.40 / $68 = 12.35%
Re = 17.35%
outstanding stock's market value = 7,000,000 x $68 = $476,000,000
WACC = [($476,000,000/$587,100,000) x 17.35%] + [($111,100,000/$587,100,000) x 5.75% x 0.79] = 14.07% + 1.01% = 15.08%
B&B has a new baby powder ready to market. If the firm goes directly to the market with the product, there is only a 60 percent chance of success. However, the firm can conduct customer segment research, which will take a year and cost $1.14 million. By going through research, the company will be able to better target potential customers and will increase the probability of success to 75 percent. If successful, the baby powder will bring a present value profit (at time of initial selling) of $19.1 million. If unsuccessful, the present value payoff is only $6.1 million. The appropriate discount rate is 14 percent.
Required:
Calculate the NPV for the firm if it conducts customer segment research and if it goes to market immediately.
Answer:
NPV = $13.9m
NPV = $11.05m (if conducts customer segment research)
Explanation:
DATA
Successfull probability = 60%
Unsuccessful probability = 40%
Initial selling = $19.1m
Unsuccessful present value = $6.1 m
Research cost = $1.14m
Discount rate = 14%
Solution ( NPV If the firm goes to market immediately)
NPV = (Successful probability x initial selling) + (Unsuccessful probability x Unsuccessful present value)
NPV = (60% x $19.1m) + ( 40% x $6.1 m)
NPV = $11.46m + $2.44m
NPV = $13.9m
Solution (NPV if the firm conducts customer segment research)
NPV = ((Successful probability x initial selling) + (Unsuccessful probability x Unsuccessful present value)/1+discount rate ) - research cost
NPV = [tex]\frac{13.9m}{1+0.14} - 1.14[/tex]
NPV = $12.19m - $1.14m
NPV = $11.05m
Note: We can calculate NPV if the firm conducts customer segment research by dividing NPV calculated above by (1+discount rate) and research cost is deducted from the whole.
Mario transferred real estate with an adjusted basis of $140,000 for similar real estate with a fair market value of $160,000. The exchange qualified as a like-kind exchange. The realized gain on the exchange was $
Answer:
$20,000
Explanation:
Calculation for th e realized gain on the exchange
Using this formula
Realized gain=Fair market value - Adjusted basis
Let plug in the formula
Realized gain=$160,000-$140,0000
Realized gain=$20,000
Therefore the realized gain on the exchange was $ 20,000
A. Why may a hotel charge such very high prices for wine, soft drinks or even bottled water and yet quite reasonable prices for food and still get away with such high prices?
Answer:
The justification given is indeed the performance, product as well as the location which makes up for the exorbitant cost charged.
Explanation:
It's indeed primarily although together with the goods, they have their service. The hotels wouldn't go out of operation even though they demand these high costs since perfect pairing some other considerations included within the amount, including the environment, infrastructure, facilities, services, etc.The income elasticity becomes extremely relatively elastic, which means the demand doesn't really exist based on the paid costs.A "flat tax" on personal income, in which the same tax rate is applied to every dollar of income earned by each taxpayer, is an example of
Answer:
proportional tax
Explanation:
The description stated in the question is an example of a proportional tax. Like mentioned, this is a type of income tax system that enforces the same percentage tax rate to every single individual regardless of their overall income. This applies to low, middle, and high-income taxpayers. Therefore, if a low-income tax individual is charged 10% then the middle and high-income taxpayers will also be charged 10%.
A borrower has applied for a refinance on her property valued at $235,000. She currently has a HELOC with a $47,000 limit and currently owes $25,850. The borrower has applied for a first mortgage of $164,500. Which of the following LTV, CLTV, and HLTV are accurate based on this information?
a. 70% / 80%/ 95%
b. 70% / 83% / 100%
c. 70% / 81% / 90%
d. 75% / 80% / 91%
Answer:
c. 70% / 81% / 90%
Explanation:
Loan to Value ratio LTV is the ratio of borrowers principal loan balance to the appraisal value of the property. Combined Loan to Value Ratio CLTV is the ratio which considers the sum of all the loan taken on the property. High loan to Value ratio is the one which loan is exceeding by the value of borrowers home.
What is the stock price per share for a stock that has a required return of 12%, an expected annual dividend of $3.15 per share in the first year, and a constant (sustainable) growth rate of dividends of 8%
Answer:
Price per share = $78.75
Explanation:
The Dividend Valuation Model is a technique used to value the worth of an asset. According to this model, the worth of an asset is the sum of the present values of its future cash flows discounted at the required rate of return.
If dividend is expected to grow at a given rate , the value of a share is calculated using the formula below:
Price=Do (1+g)/(k-g)
Where Do- Dividend now, g- growth rate, k- required rate of return(cost of equity)
Note Do (1+g) represents the expected dividend in the first year
DATA:
Do (1+g) = 3.15
g= 8%
k= 12%
Price per share = 3.15/(0.12- 0.08) = $78.75
Price per share = $78.75
On January 1, 2012 Johnson Company issued bonds with a face value of $750,000. The bonds carry an interest rate of 8% payable each January 1.
Required:
a. Prepare the journal entry for the issuance assuming the bonds are issued at 96.
b. Prepare the journal entry for the issuance assuming the bonds are issued at 103.
Answer:
a.
January 1 Cash 720000 Dr
Discount on Bonds Payable 30000 Dr
Bonds Payable 750000 Cr
b.
January 1 Cash 772500 Dr
Bonds Payable 750000 Cr
Premium on Bonds Payable 22500 Cr
Explanation:
a.
When the bonds are issued at 96, this means that they are issued at 96% of the face value of the bond which is 750000 * 0.96 = 720000
So, the cash received from issuing the bonds is 720000. As the face value of the bonds is 750000 which will be recorded as bonds payable, the difference between the cash received and the face value is the discount amount which will be debited.
b.
When the bonds are issued at 103, this means that they are issued at 103% of the face value of the bond which is 750000 * 1.03 = 772500
So, the cash received from issuing the bonds is 772500. As the face value of the bonds is 750000 which will be recorded as bonds payable, the difference between the cash received and the face value is the premium amount which will be credited.