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2 years ago

In a commercial bank's t-account, reserves and outstanding loans are recorded as?

Business

1 answer:

Vsevolod [243]2 years ago

3 0

In a commercial bank's t-account, reserves and outstanding loans are recorded as assets.

In economic accounting, "reserve" usually has a credit balance and may talk over with part of shareholders' fairness, a liability for envisioned claims, or contra-asset for uncollectible debts. A reserve can seem in any part of shareholders' fairness besides for contributed or simple proportion capital.

Reserves are a part of income or gain that has been allotted for a selected reason. Reserves are usually installed to shop for fixed property, pay bonuses, pay an anticipated prison settlement, pay for upkeep & protection and pay off debt.

Reserves – additionally called retained income – are portions of a commercial enterprise's profits that have been set aside to strengthen the enterprise's economic function.

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On August 1, 2021, Limbaugh Communications issued $30 million of 10% nonconvertible bonds at 104. The bonds are due on July 31,

kodGreya [7K]

Answer:

Answers are journal entries, in the explanation box

<h2>Explanation:</h2><h3>Bonds:</h3>

Bonds is an interest bearing security or long term promissory note that a company represents while borrowing money with the interested investors.

<h2>Requirement 1:</h2><h2>Prepare the journal entries on August 1, 2021, to record:</h2><h3>Requirement 1(a):</h3>

The issuance of the bonds by Limbaugh (L)

Solution:

Following is the journal entry for the issuance of bonds on August 1, 2021:

1st August 2021:

Debit: Cash $31,200,000 (Working 1)

Debit: Discount on bonds payable $3,600,000 (Working 3: Note 1)

Credit: Bonds payable $30,000,000

Credit: Equity - stock warrants $4,800,000 (Working 2)

Working 1:

Calculation of cash received:

Cash received = Face value × Issued rate

Cash received = $30,000,000 × 104%

Cash received = $31,200,000

Working 2:

Calculation of amount of equity - stock warrants:

Equity - stock warrants = Market price per warrant × number of warrants × number of bonds

Equity - stock warrants = $8 × 20 warrants × (30,000,000÷ 1,000 bonds)

Equity - stock warrants = $4,800,000

Working 3:

Calculate the discount on bonds payable:

Discount on bonds payable = Bonds payable + Equity stock warrants - Cash received

Discount on bonds payable = $30,000,000 + $4,800,000 - $31,200,000

Discount on bonds payable = $3,600,000

Note 1: Since discount on bonds issues is an expense, therefore, it is debited.

<h3>Requirement: 1 (b)</h3>

Prepare the journal entries on August 1, 2021, to record the investment by Interstate (I).

The following is the journal entry on August 1, 2021 to record the investment by Interstate (I) i.e. investor:

Debit: Investment in stock $960,000 (Working 4)

Debit: Investment in bonds $6,000,000 (Working 5)

Credit: Discount on bonds investment $720,000 (Working 7)

Credit: Cash $6,240,000 (Working 6)

Working 4:

Calculate the investment in stock warrants:

Investment in stock warrant = Equity - stock warrant × 20%

Investment in stock warrant = $4,800,000 × 20%

Investment in stock warrant = $960,000

Working 5:

Calculate the amount of investment in bonds:

Investment in bonds = Face value × 20%

Investment in bonds = $30,000,000 × 20%

Investment in bonds = $6,000,000

Working 6:

Calculate the amount of cash paid:

Cash paid = Face value × issued rate × 20%

Cash paid = $30,000,000 × 104% × 20%

Cash paid = $6,240,000

Working 7:

Calculate discount on bond investment:

Discount on bond investment = Investment in stock warrants + Investment in bonds - Cash paid

Discount on bond investment = $960,000 + $6,000,000 - $6,240,000

Discount on bond investment = $720,000

<h2>Requirement 2:</h2><h2>Prepare the journal entries for both Limbaugh and Interstate in February 2032, to record the exercise of the warrants.</h2>

<h3>Requirement 2(a)</h3>

Prepare the journal entries for Limbaugh in February 2032, to record the exercise of the warrants.

Solution:

Following is the journal entry for exercise of warrants by Limbaugh:

Debit: Cash: $7,200,000 (Working 8)

Debit: Equity - stock warrants $960,000 (Working 9)

Credit: Common stock - equity $8,160,000

Working 8:

Amount of cash received from the exercise:

Amount of cash received from the exercise = Exercise price per warrant × Number of warrants × Number of bonds × 20%

Amount of cash received from the exercise = $60 × 20 warrants × ($30,000,000/$1,000) × 20%

Amount of cash received from the exercise = $7,200,000

Working 9:

Amount of equity - stock warrants from exercise:

Equity - stock warrants = Total equity stock-warrants × 20%

Equity - stock warrants = $4,800,000 × 20%

Equity - stock warrants = $960,000

Working 10:

Amount of common stock:

Amount of common stock = Cash received + equity - stock warrants

Amount of common stock = $7,200,000 + $960,000

Amount of common stock = $8,160,000

<h3>Requirement 2(b)</h3>

Prepare the journal entries for Interstate in February 2032, to record the exercise of the warrants.

Solution:

The journal entry is as follows:

Debit: Investment in common stock: $8,160,000 (Working 13)

Credit: Investment in stock warrants: $960,000 (Working 11)

Credit: Cash: $7,200,000 (Working 12)

Working 11:

Amount of equity - stock warrants from exercise:

Equity - stock warrants = Total equity stock-warrants × 20%

Equity - stock warrants = $4,800,000 × 20%

Equity - stock warrants = $960,000

Working 12:

Calculate the amount of cash paid for exercise:

Amount of cash paid for the exercise = Exercise price per warrant × Number of warrants × Number of bonds × 20%

Amount of cash paid for the exercise = $60 × 20 warrants × ($30,000,000/$1,000) × 20%

Amount of cash paid for the exercise = $7,200,000

Working 13:

Investment in common stock:

Amount of common stock:

Investment in common stock = Cash paid + Investment in stock warrants

Investment in common stock = $7,200,000 + $960,000

Investment in common stock = $8,160,000

3 0

3 years ago

Do all accounts serve the same function? Why or why not?

lara [203]

No, accounts serve the purpose that their owners choose. They do not have the same function.

>>>Accounts are financial records of an organization that register all financial transactions, and must be kept at its principal office or place of business.
In accounting, it means the chronological record of changes in the value of an entity's assets, liabilities, and the owners' equity

In banking,it means continuing financial relationship between a bank and a customer,whereby deposits and debts are held and processed within a framework of established rules and procedures.

3 0

3 years ago

Read 2 more answers

Technology Corp. is considering a $238,160 investment in a new marketing campaign that it anticipates will provide annual cash f

LUCKY_DIMON [66]

Answer:

B) IRR is 3%. Reject the project.

Explanation:

We can use an excel spreadsheet to calculate the internal rate of return (IRR) for this investment:

we can use the IRR function =IRR(values,[guess])

where:

value 1 = -238160
value 2 to 6 = 52000
guess = optional, not required

=IRR(-238160,52000,52000,52000,52000,52000) = 3%

4 0

3 years ago

A commercial building worth $400,000 is insured under a Commercial Property policy for $240,000, and an 80% coinsurance clause a

Mekhanik [1.2K]

Answer: $15,000

Explanation: The 80% coinsurance clause on the property means that the insurance policy holder is agreeing to contribute up to 80% of the property's worth. Hence in the event of a loss to the building worth $20,000; the insures policyholder would receive :

(Actual contribution/expected contribution) x value of loss to the property

Where : Expected contribution = 80% of property's worth

ie (80/100) x $400,000 = $320,000

then the insured is to receive: ($240,000/$320,000) x $20,000 = $15,000

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4 years ago

1. What age group represents the highest percentage of taxpayers in 2016?

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Out of the roughly 142 million filers, people under the age of 35 account for 35 percent of all returns but just 17 percent of total AGI. By far, the largest number of filers are between the ages of 35 and 55, and they account for nearly half of total AGI

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3 years ago