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Problem 1

Assume the following transactions occurred during the year. The annual accounting period ends on December 31.


Jan. 15

Purchased and paid for merchandise for resale at an invoice cost of $15,600. A periodic inventory system is used.

Apr. 1

Borrowed $800,000 from a bank for general use, executing a one-year, 5% note payable

June 14

Received a $12,000 customer deposit for services to be performed in the future.

July 15

Performed $4,250 of the services paid for on June 14.

Dec. 15

Received an electric bill for $25,680. The bill will be paid in early January.

Dec. 31

Determined wages owed to employees to be $13,500 that will be paid on January 2.



    Prepare journal entries for each of the transactions listed.
    Prepare any required adjusting entries on December 31.


Problem 2

A company issued a $50,000 four-year, 4% bond on January 1. Bond interest is paid each December 31. The bond was sold to yield 5%.


Complete a bond amortization schedule for the life of the bond using the effective interest method.


Problem 3

A company with an annual accounting year ending on December 31 issued bonds on January 1 in the amount of $500,000 maturing in 10 years with interest payable each June 30 and December 31 at a 6% annual rate. The company uses straight-line amortization for any bond discounts or premiums.


Provide the following amounts to be reported in the company financial statements at the end of year one under each scenario.








Issued at Par

Issued at 99

Issued at 102

Interest expense

Bonds payable

Unamortized premium or discount

Net bond liability

Cash interest paid


Problem 4

A corporation was formed on January 1 and was authorized to issue 400,000 shares of common stock at $2 par value. During the first year of operations, the company earned $325,000 and the following transactions occurred:

    Sold 150,000 shares of common stock in an initial public offering of $15 per share
    Repurchased 35,000 shares of previously common stock at $20 to be held as treasury shares.
    Resold 5,000 of the treasury stock at $22 per share.
    Market price of the outstanding shares on December 31 was $25


Prepare the stockholders’ equity section of the balance sheet at December 31 of the first year.


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