What does the debt to equity ratio show, and how is it calculated?
Debt to equity ratio measure the ability to pay debt by using the equity. It is the ratio of debt and equity.
Debt is the amount that a company owes. Debt includes notes payable, loans, etc.
The debt-equity ratio is a ratio that shows the relationship between total liabilities and total equity. The debt-equity ratio is calculated by dividing total liabilities by total equity.
Journalizing bond transactions
Power Company issued a $1,000,000, 5%, 5-year bond payable at face value on
January 1, 2018. Interest is paid semiannually on January 1 and July 1.
1. Journalize the issuance of the bond payable on January 1, 2018.
2. Journalize the payment of semiannual interest on July 1, 2018.
Retiring bonds payable before maturity
On January 1, 2018, Powell Company issued $350,000 of 10%, five-year bonds payable
at 102. Powell Company has extra cash and wishes to retire the bonds payable on
January 1, 2019, immediately after making the second semiannual interest payment. To
retire the bonds, Powell Company pays the market price of 98.
1. What is Powell Company’s carrying amount of the bonds payable on the retirement
2. How much cash must Powell Company pay to retire the bonds payable?
3. Compute Powell Company’s gain or loss on the retirement of the bonds payable.
Journalizing bond transactions including retirement at maturity
McQueen Company issued a $100,000, 7.5%, 10-year bond payable. Journalize
transactions for McQueen Company, and include an explanation for each
a. Issuance of the bond payable at face value on January 1, 2018.
b. Payment of semiannual cash interest on July 1, 2018.
c. Payment of the bond payable at maturity, assuming the last interest
already been recorded. (Give the date.)
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