1. On January 1, a business issues $500,000 face value, 10 year, 10% contract rate bonds dated January 1. Interest is payable
semiannually each June 30 and December 31. Prepare any necessary journal entries on January 1 to issue the bonds under the following
independent circumstances. (Please be sure to show your work.)
A. The market interest rate on January 1 is 10%.
B. The market interest rate on January 1 is 12%.
C. The market interest rate on January 1 is 8%.
2. On January 1, a business issues $100,000 face value, 5 year, 10% contract rate bonds dated January 1. Interest is payable
ANNUALLY each December 31. The bonds were issued at a discount of $7,210 to reflect a market interest rate of 12%.
Prepare the necessary journal entries to record total interest expense for the FIRST interest period.
3. On January 1, a business issues $100,000 face value, 5 year, 10% contract rate bonds dated January 1. Interest is payable ANNUALLY
each December 31. The bonds were issued at a premium of $7,985 to reflect a market interest rate of 8%.
Prepare any necessary journal entries to record total interest expense for the FIRST interest period.
4. On June 30, a business has the following information regarding its long-term investments that qualify as available for sale
securities:
Cost Market value
ABC Co. 100,000 125,000
XYZ Co. 100,000 90,000
On June 30, the following unadjusted account balances exists:
Fair value adjustment $5,000 credit
Unrealized loss $5,000 debit
Prepare any necessary journal entries to record the adjustment to fair market value on June 30.
5. On December 31, a business has a long-term investment that qualifies an equity security with significant influence. The business
owns 25% of the voting stock of the investee.
A. On December 31, assume the investee reports a net income of $100,000 for the year. Prepare any necessary journal entries on the
books of the investor on December 31.
B. On December 31, assume the investee reports a net loss of $50,000 for the year. Prepare any necessary journal entries on the
books of the investor on December 31.
C. On December 31, assume the investee pays a $2,000 cash dividend to the investor. Prepare any necessary journal entries on the
books of the investor on December 31.
6. A business has the following financial information at the end of the year:
Prior year Current year
Net income $750,000
Depreciation expense $150,000
Dividends paid $550,000
Accounts receivable $1,500,000 $2,000,000
Inventory $3,500,000 $2,000,000
Accounts payable $350,000 $500,000
Long term debt $2,300,000 $3,000,000
Common stock $2,200,000 $2,500,000
Retained earnings $6,150,000 $6,350,000
Based on the financial information presented above, determine net cash flow from operating activities for the current year.
7. A business has the following financial information for the year:
1. Issued 10,000 shares of common stock for $20.00 per share
2. Issued long term debt of $500,000
3. Paid dividends of $85,000
4. Sold a piece of equipment of $50,000. The equipment had a book value of $20,000
5. Earned net income of $140,000
Based on the financial information presented above, determine net cash flow from financing activities for the year.