Accounting II homework Help!!!!
txrcksqn11c9
mod_2_acct_ii_hwk_assignment.xlsxPROBLEM 14-6A
| Problem 14-6A: Norwoods Borrowings | |||||
| 1. Total amount of each installment payment. | |||||
| Present value of an ordinary annuity | $200,000 | ||||
| Interest per period(i) | 0.08 | ||||
| Number of periods(n) | 5 | ||||
| Total amount of each installment payment | ($50,091.29) | ||||
| Therefore the total amount of each installment payment is $ 50,091.29 | |||||
| 2.Norwoods Amortization Table | |||||
| Period Ending Date | Beginning balance | Interest expense | Notes Payable | Cash payment | Ending Balance |
| 10/31/15 | $200,000.00 | $16,000.00 | $34,091.29 | $50,091.29 | $165,908.71 |
| 10/31/16 | $165,909.00 | $13,272.72 | $36,818.57 | $50,091.29 | $129,090.43 |
| 10/31/17 | $129,090.43 | $10,327.23 | $39,764.06 | $50,091.29 | $89,326.37 |
| 10/31/18 | $89,326.37 | $7,146.11 | $42,945.18 | $50,091.29 | $46,381.19 |
| 10/31/19 | $46,381.19 | $3,710.50 | $46,380.79 | $50,091.29 | $0.40 |
| 3.a) Accrued interest as December 31st 2015 | |||||
| Accrued interest expense = $200,000*8%*2/12= $2,666.67. Thus the journal entry is as shown below: | |||||
| Description | Dr($) | Cr($) | |||
| interest expense | $2,666.67 | ||||
| Interest payable | $2,666.67 | ||||
| b) The first annual payment on the note. | |||||
| Ten more months of interest has accrued $200,000*8%*10/12 =$13,333.33 accrued interest .Therefore the journal entry is as shown below: | |||||
| Description | Dr($) | Cr($) | |||
| Notes payable | $34,091.29 | ||||
| interest expense | $13,333.33 | ||||
| interest payable | $2,666.67 | ||||
| Cash | $50,091.29 |
PROBLEM 14-7A
| Problem 14-7A | ||
| Question 1 | ||
| a) Debt to equity ratios | ||
| Pulaski Company | Scott Company | |
| Total liabilities | $360,000.00 | $240,000.00 |
| Total Equity | $500,000.00 | $200,000.00 |
| Debt-Equity Ratio | 0.72 | 1.2 |
| Question 2 | ||
| The debt to equity ratio measures the amount of debt a company uses has to finance its business for every dollar of equity it has. | ||
| A higher debt to equity ratio implies that a company uses more debt than equity for financing. In this case, the debt to equity ratio for Pulaski Company | ||
| is 0.72 which is less than 1 implying that the stockholder's equity exceeds the amount of debt borrowed. Thus Pulaski Company may not likely suffer from risks brought about by | ||
| huge amount of debts in the capital structure. On the other hand, the debt to equity ratio of Scott Company is 1.2 which is greater than 1 implying that the debt exceeds the total | ||
| amount stockholders equity. Huge debts is associated with a lot of risks. First, there is the risk of defaulting whereby the company may be unable to repay its debt and therefore leading | ||
| to bankruptcy. Second, a company may find it difficult to obtain additional funding from creditors.This is because the creditors prefer companies with low debt to equity ratio. Finally, there is the risks of | ||
| violating the debt covenants. A covenant is an agreement that requires a company to maintain adequate financial ratio levels. Too much borrowings may violate this covenant. Since Scott | ||
| Company has a higher debt to equity ratio, it may experience these risks which may eventually lead to the company being declared bankrupt . | ||
PROBLEM 14-6B
| Problem 14-6B: Gordon Enterprises Borrowings | |||||
| 1. Total amount of each installment payment. | |||||
| Present value of an ordinary annuity | $150,000 | ||||
| Interest per period(i) | 0.1 | ||||
| Number of periods(n) | 3 | ||||
| Total amount of each installment payment | ($60,317.22) | ||||
| Therefore the total amount of each installment payment is $ 60,317.22 | |||||
| 2.Gordons Enterprises Amortization Table | |||||
| Period Ending Date | Beginning balance | Interest expense | Notes Payable | Cash payment | Ending Balance |
| 9/30/15 | $150,000.00 | $15,000.00 | $45,317.22 | $60,317.22 | $104,682.78 |
| 9/30/16 | $104,682.78 | $10,468.28 | $49,848.94 | $60,317.22 | $54,833.84 |
| 9/30/17 | $54,833.84 | $5,483.38 | $54,833.84 | $60,317.22 | $0.00 |
| 3.a) Accrued interest as December 31st 2015 | |||||
| Accrued interest expense = $150,000*10%*3/12= $3,750. The journal entry is as shown below: | |||||
| Description | Dr($) | Cr($) | |||
| Interest expense | $3,750.00 | ||||
| Interest payable | $3,750.00 | ||||
| b) The first annual payment on the note. | |||||
| Nine more months of interest has accrued $150,000*10%*9/12 =$11,250 accrued interest. Thus the journal entry is as shown below: | |||||
| Description | Dr($) | Cr($) | |||
| Notes payable | $45,317.22 | ||||
| interest expense | $11,250.00 | ||||
| interest payable | $3,750.00 | ||||
| Cash | $60,317.22 |
PROBLEM 14-7B
| Problem 14-7B | ||
| Question 1 | ||
| a) Debt to equity ratios | ||
| Atlas Company | Bryan Company | |
| Total liabilities | $80,000.00 | $562,500.00 |
| Total Equity | $100,000.00 | $187,500.00 |
| Debt-Equity Ratio | 0.8 | 3 |
| Question 2 | ||
| The debt to equity ratio measures the amount of debt a company uses has to finance its business for every dollar of equity it has. | ||
| A higher debt to equity ratio implies that a company uses more debt than equity for financing. In this case, the debt to equity ratio for Atlas Company | ||
| is 0.80 which is less than 1 implying that the stockholder's equity exceeds the amount of debt. Thus Atlas Company may not likely suffer from risks brought about by | ||
| huge amount of debts in the capital structure. On the other hand, the debt to equity ratio of Bryan Company is 3.0 which is more than 1 implying that the debt exceeds the total | ||
| amount stockholders equity. Huge debts is associated with a lot of risks. First, there is the risk of defaulting whereby the company may be unable to repay its debt and therefore leading | ||
| to bankruptcy. Second, a company may find it difficult to obtain additional funding from creditors.This is because the creditors companies prefer with low debt to equity ratio. Finally, there is the risks of | ||
| violating the debt covenants. A covenant is an agreement that requires a company to maintain adequate financial ratio levels. Too much borrowings may violate this covenant. Since Bryan | ||
| Company has a higher debt to equity ratio, it may experience these risks. | ||
