These are from a practice test so i have the answers so I ju

These are from a practice test so i have the answers, so I just need a simple explaniton of how they are, thank you!

1. Which answer would represent the financial statement presentation of stockholders equity after the following transactions: 1. Issued 200 shares of $12 par value common stock when the market value was $25 a share. Five hundred shares are authorized. 2. Purchased 75 shares of treasury stock at a market price of $22 a share.
c. Common Stock, $12 par value, 500 shares authorized, 200 shares issued, 125 outstanding$2,400 Paid in Capital in Excess of Par - Common $2,600 Less: Treasury Stock, 75 shares @ $22 per share ($1,650)

2.Borrow Company issued 50 bonds payable; $1,000 each, 9% annual interest, maturity in ten years. The bonds were sold at 96. Assume the market rate of interest was 10%. The amount of interest expense for the first full year would be (assume effective interest amortization):
a. $4,800

3.On January 1, 2003, Soap Company sold (issued) 600, $1,000, five-year, 8% at 95. Assume the market rate of interest was 8.5%. The bonds were dated January 1, 2003, and interest is payable each December 31. The company uses the effective-interest method to amortize the bond discount. The amount of the net liability for bonds payable that would be reported on the December 31, 2003, balance sheet is:
d. $570,450

4.On January 1, 2003, Caps Company sold 100, $1,000, ten-year, 8% bonds at 104.5. Assume the market rate of interest was 7%. The bonds were dated January 1, 2003, and interest is payable each December 31. The company should report the net liability for the bonds on December 31, 2003 balance sheet as (assume effective-interest amortization):
d. $103,815

5.On January 1, 2003, Super Inc. started the year with a $22,000 balance in its Retained Earnings account. During 2003, the company earned net income of $40,000 and declared and paid dividends of $10,000. Also, the company received cash of $15,000 for the sale of stock to its owners. Therefore, the balance in Retained Earning on December 31, 2003, would be:
d. $52,000

6.The board of directors of Helfand Corporation declared a cash dividend of $1.50 per share on 42,000 shares of common stock on June 14, 20x2. The dividend is to be paid on July 15, 20x2, to shareholders of record on July 1, 20x2.
(a)The proper journal entry to be recorded on June 14, 20x2, will include a  
b. debit to Dividends.
(b)The effects of the journal entry to record the declaration of the dividend on June 14, 20x2, are to  
a. decrease stockholders’ equity and increase liabilities.
(c)The proper journal entry to be recorded on July 15, 20x2, will include a  
c. debit to Dividend Payable.  
(d)The effects of the journal entry to record the payment of the dividend on July 15, 20x2, are to  
b. decrease liabilities and decrease assets

Solution

Hi,

1) Here, the answer is A.

The company received $5,000 (200*$25). However, the whole amount is not fully equity capital. Out of $25, the equity portion is only $12 and the remaining $13 is in the nature of a premium, which should be disclosed seperately. Since the company has brought back 75 shares, only 125 share are still outstanding (200-75).

2) Bond amortisation

When a bond is sold at a discount, the amount of the bond discount must be amortized to interest expense over the life of the bond. Under the effective interest rate method the amount of interest expense in a given accounting period will correlate with the amount of a bond\'s book value at the beginning of the accounting period.

Here, the book value of bond = 50 x $960 = $48,000

As the effective rate of interest = 10%, the interest expense for the 1st full year will be $48,000 x 10% = $4,800.

The difference between $4,500 and $4,800 will be actually the amortisation of bond discount