Perfect systems borrow $94,000 cash on May 15, 2011, by signing a 60-day, 12% notes.

1. On what date this note mature

2. Suppose the face value of note equals $94,000, the principal of the loan. Prepare the
journal entries to record (a) issuance of the note and (b) payment of the note at maturity.
1)
July 14, 2011
2)
a)
May. 15

Cash...................................................................................................
94,000
Notes Payable .............................................................................

94,000

Interest Expense ...............................................................................1,880

Notes Payable ...................................................................................
94,000
Cash.............................................................................................

95,880

b)
July. 14

10-1
Note round amounts to the nearest whole dollar; assume no reversing entries are used
On January 1, 2011, Kidman Enterprise issues a bond that have a $1,700,000 Par value,
mature in 20 years and pay 9% interest semiannually on June 30 and December 31. The
bonds are sold at par.
1. How much interests will Kidman pay (in cash) to the bondholders every six months?
2. Prepare journal entries to record (a) the issuance of bonds on January 1, 2011; (b) The
first interest payment on June 30, 2011; and (c) the second interest payment on December
31, 2011.
3. Prepare the journal entry for issuance assuming the bonds are issued at (a) 98 and (b)
102.
1.

Semiannual cash interest payment = $1,700,000 x 9% x 1/2 = $76,500

2.
Journal entries
2011

(a)
Jan.

Cash...................................................................................................
1,700,000
Bonds Payable ............................................................................
Sold bonds at par.

1,700,000

Bond Interest Expense.....................................................................

76,500
Cash.............................................................................................
Paid semiannual interest on bonds.

76,500

Bond Interest Expense.....................................................................

76,500
Cash.............................................................................................
Paid semiannual interest on bonds.

76,500

(b)
June 30

(c)
Dec.

31

3.
2011
(a)
Jan.

Cash*.................................................................................................
1,666,000
Discount on Bonds Payable .............................................................
34,000
Bonds Payable ............................................................................
Sold bonds at 98. *($1,700,000 x 0.98)

1,700,000

(b)
Jan.

Cash*.................................................................................................
1,734,000
Premium on Bonds Payable ......................................................
Bonds Payable ............................................................................
Sold bonds at 102. *($1,700,000 x 1.02)

34,000
1,700,000

10-16
Ramirez Company is considering a project that will require a $500,000 loan. It presently
has total liabilities of $200,000 and total asset of $620,000
1. Compute Ramirezs (a) present debt-to-equity ratio and (b) the debt-to-equity ratio
assuming it borrows $500,000 to fund the project.
2. Evaluate and discuss the level of risk involved if Ramirez borrows the funds to pursue
the project.
1a. Current debt-to-equity ratio = $220,000 / $400,000* = 0.55
*Total equity = $620,000 - $220,000 = $400,000

1b. Potential debt-to-equity ratio = $720,000* / $400,000 = 1.80

*Total liabilities = $220,000 + $500,000 = $720,000
2.

Ramirezs risk will increase since will increase its debt-to-equity ratio.
Generally speaking, debt carries risk because interest payments on debt as well
as the principal amount would have to be paid regardless of whether or not the
project is successful.

11-2
Aloha Corporation issues 6,000 shares of its common stock for $144,000 cash on
February 20. Prepare journal entries to record this event under each of the following
separate situations.
1. The stock has neither par nor stated value.
2. The stock has $20 par value
3. The stock has $8 stated value
1.
Feb. 20

2.
Feb. 20

3.
Feb. 20

Cash............................................................................................ 144,000
Common Stock, No-Par Value ..........................................
Issued common stock for cash.

Cash............................................................................................ 144,000
Common Stock, $20 Par Value ..........................................
Paid-In Capital in Excess of Par
Value, Common Stock .....................................................
Issued common stock for cash.

Cash............................................................................................ 144,000
Common Stock, $8 Stated Value .......................................
Paid-In Capital in Excess of
Stated Value, Common Stock .........................................
Issued common stock for cash.

144,000

120,000
24,000

48,000
96,000