Question 1 - On May 1 2012, Jaguchi issued $300,000 of 12%, 5-year bonds for $294,200 plus accrued interest. The bonds are dated March 1, 2012, and pay semiannual interest on March 1 and September 1. Jaguchi uses the straightline method of amortization and will amortize the discount over the 58 months that the bonds are expected to be outstanding.
Instructions
a. Prepare journal entries to record 1) the bond issuance on May 1, 2012; 2) the semiannual interest payment and discount amortization on September 1, 2012 and 3) accrued interest and discount amortization on December 31, 2012.
b. Compute total bond interest expense for 2012.
c. Present the proper disclosure of the bond issue on Jaguchi December 31, 2012, balance sheet.
d. Prepare journal entries to record the semiannual interest payment and discount amortization on March 1, 2012.
e. Assume that the entire bond issue was called at 101, plus accrued interest, on July 1, 2012. Prepare journal entries to record the bond retirement. Hint: Examine when amortization was last recorded.
Question 2 - Michale Inc. was formed on January 1 to invest in artwork. The company is au-thorized to issue 10,000 shares of $1 par-value common stock and 1,000 shares of 10%, $50 par-value cumulative preferred stock. The following selected transactions occurred during the first quarter of operation:
Jan. 3 Sold 5,000 shares of common stock to the corporation's founders at $30 per share.
19 Sold 600 shares of preferred stock at $58 per share.
Feb. 4 Issued 100 common shares to an attorney for $3,300 of legal work related to corporate start-up and formation.
Feb. 11 Issued 2,000 shares of common stock to XXX in exchange for a painting appraised at $75,000. The art originally cost XXX $30,000.
Instructions
a. Prepare journal entries to record the company's transactions.
b. Prepare the stockholders' equity section of the firm's March 31 balance sheet. The Retained Earnings balance on this date totals $41,000.
c. The president of Michale believes that organization costs should be expensed immediately. Briefly explain why the president's view is incorrect.