Aloha Cruise issued $170,000 in 6%, 10-year bonds

PART E. Answer this part on this exam paper. (13 total marks)

1. Aloha Cruise issued $170,000 in 6%, 10-year bonds (payable on December 31, 2028) on December 31, 2018, for $156,776. Interest is paid on June 30 and December 31. The market rate of interest is 8%.

Required:

Prepare journal entries for the payment of interest on June 30 and December 31, 2018.

2. Solomon Shingles uses the aging method to estimate bad debt expense. At the beginning of the year, the company had an accounts receivable balance of $47,600 and a credit balance in the allowance for doubtful accounts of $ 9,960. During the year, Solomon had credit sales of $1,248,600, and collected accounts receivable in the amount of $1,205,400. $21,200 of accounts receivable were determined to be uncollectible and written off. The company had the following analysis of accounts receivable at the end of the year:

Accounts Receivable Age      Amount    Proportion Expected to Default

Current                     $ 40,800              1%

1-15 days past due              10,600             2%

16-45 days past due              6,200             8%

46-90 days past due              7,200             15%

Over 90 days past due            4,800             30%

$ 69,600

Windsor has a December 31 yearend.

Required: Answer the questions below on the following page:

1. Prepare the journal for the write-off of the accounts receivable of $21,200.

2. Calculate the desired ending balance of the allowance for doubtful accounts at the end of the year.

3. Prepare the journal entry to record bad debt expense at year end.

27. (3 marks)

Selected data from the Goal Company follows:

2015              2014

($)               ($)

Retained earnings                155,000          145,000

Accumulated OCI                  150,000          130,000

Common shares                   250,000          225,000

Current liabilities             300,000          200,000

Long-term debt                  900,000          750,000

Required:

Based on the above information only, determine if the debt to equity ratio is improving or deteriorating? Should shareholders be concerned?

Here’s the SOLUTION

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