Majesty Productions accepted a $7,200, 120-day, 6% note from Swartz Studio on March 1. On the date the note matures, Swartz is u
nable to pay, but Majesty intends to continue collection efforts. What entry should Majesty record on the maturity date for this dishonored note?
2 answers:
Answer:
Check the explanation
Explanation:
The accounting entry (which is an official record/book that documents a transaction of the day to day activities of a business. In most cases, an entry is prepared through the principles of the double entry bookkeeping system, which involves one to create both a debit and credit entry, and which ultimately leads to the creation of a comprehensive set of financial statements.) for Majesty record on the maturity date for this dishonored note is in the attached image below:
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Answer: Surething Inc, needs to issue bonds with 11% interest rate in order to make Hugh indifferent between investing in two bonds.
We arrive at the answer in the following manner:
The City of Helfin bonds are municipal bonds and hence they are tax free. This means that Hugh will get an after - tax return of 6.6%.
The bonds of Surething Inc offering a 10% interest, however are taxed at 40%. So, the current after-tax returns of the bond is:
Current after tax return = 0.06 or 6%
However Hugh will be indifferent to investing in these two bonds only if they offer the same after-tax return of 6.6%.
Given this, we can calculate the indifference rate as follows:
Pre-tax return = 0.11 or 11%.