171. Given the following data, prepare an amortization schedule (use the straight line method)
1/1/10 – issued $800,000, 9%, 3 year bonds, interest paid annually on 12/31 to yield 8%
Use the following format (round to nearest dollar, may have small rounding difference);
172. Two companies are financed as follows:
X Co.
Y Co.
Bonds payable, 9% issued at face
$5,000,000
$3,000,000
Common stock, $25 par
3,000,000
3,000,000
Income tax is estimated at 40% of income.
Determine for each company the earnings per share of common stock, assuming that the income before bond interest and income taxes is $2,280,000
each.
X Co.
Y Co.
Earnings before interest and taxes
$2,280,000
$2,280,000
Deduct interest on bonds
450,000
270,000
Income before income tax
$1,830,000
$2,010,000
Deduct income tax
732,000
804,000
Net income
$ 1,098,000
$ 1,206,000
Earnings per share on common stock
$ 9.15
$ 10.05
Date
Cash paid
Int. expense
Amortization
Bond carry value
Date
Cash paid
Int. expense
Amortization
Bond carry value
1/1/10
820,615
72,000
65,128
6,872
813,743
72,000
65,128
6,872
806,872
72,000
65,128
6,872
800,000
173.
(a)
Prepare the journal entry to issue $500,000 bonds which sold for $490,000.
(b)
Prepare the journal entry to issue $500,000 bonds which sold for $515,000.
174. Brubeck Co. issued $10,000,000 of 30-year, 8% bonds on May 1 of the current year, with interest payable
on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to
record the following selected transactions for the current year:
May 1
Issued the bonds for cash at their face amount.
Nov. 1
Paid the interest on the bonds.
Dec. 31
Recorded accrued interest for two months.
May 1
Cash
10,000,000
Bonds Payable
10,000,000
Nov. 1
Interest Expense
400,000
Cash
400,000
Dec. 31
Interest Expense
133,333
Interest Payable
133,333
Cash
490,000
Discount on Bonds Payable
10,000
Bonds Payable
500,000
Cash
515,000
Premium on Bonds Payable
15,000
Bonds Payable
500,000
175. On the first day of the current fiscal year, $1,500,000 of 10-year, 8% bonds, with interest payable
semiannually, were sold for $1,225,000. Present entries to record the following transactions for the current
fiscal year:
(a)
Issuance of the bonds.
(b)
First semiannual interest payment.
(c)
Amortization of bond discount for the year, using the straight-line method of amortization.
176. On the first day of the current fiscal year, $2,000,000 of 10-year, 7% bonds, with interest payable annually,
were sold for $2,125,000. Present entries to record the following transactions for the current fiscal year:
(a)
Issuance of the bonds.
(b)
First annual interest payment.
(c)
Amortization of bond premium for the year, using the straight-line method of amortization.
Cash
2,125,000
Premium on Bonds Payable
125,000
Bond Payable
2,000,000
Interest Expense
140,000
Cash
140,000
Premium on Bonds Payable
12,500
Cash
1,225,000
Discount on Bonds Payable
275,000
Bonds Payable
1,500,000
Interest Expense
60,000
Cash
60,000
Interest Expense
27,500
Discount on Bonds Payable
27,500
177. On August 1, Clayton Co. issued $1,300,000 of 20-year, 9% bonds, dated August 1, for
$1,225,000. Interest is payable semiannually on February 1 and August 1. Present the entries to record the
following transactions for the current year:
(a)
Issuance of the bonds.
(b)
Accrual of interest and amortization of bond discount for the year, on December 31, using the straight-line method. Round to the nearest
dollar when necessary.
Discount on Bonds Payable
75,000
Bonds Payable
1,300,000
Interest Expense
48,750
Interest Payable
48,750
Discount on Bonds Payable
1,563
178. On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with
interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. Present
entries to record the following transactions for the current fiscal year:
Lisbon Co.
(a)
Issuance of the bonds.
(b)
Second semiannual interest payment.
(c)
Amortization of bond premium for the year, using the straight-line method of amortization.
Orange Inc.
(d)
Purchase of the bonds.
(e)
Receipt of second semiannual interest payment.
(f)
Amortization of bond premium for the year, using the straight-line method of amortization.
Cash
1,050,000
Premium on Bonds Payable
50,000
Bonds Payable
1,000,000
Interest Expense
35,000
Cash
35,000
Premium on Bonds Payable
5,000
Interest Expense
5,000
Investment in Lisbon Co. Bonds
1,050,000
Cash
1,050,000
Cash
35,000
Interest Revenue
35,000
Interest Revenue
5,000
Invenstment in Lisbon Co. Bonds
5,000
179. Present entries to record the selected transactions described below:
(a)
Issued $2,750,000 of 10-year, 8% bonds at 97.
(b)
Amortized bond discount for a full year, using the straight-line method.
(c)
Called bonds at 98. The bonds were carried at $2,692,250 at the time of the redemption.
180. A company issued $2,000,000 of 30-year, 8% callable bonds on April 1, 2011, with interest payable on
April 1 and October 1. The fiscal year of the company is the calendar year. Journalize the entries to record the
following selected transactions:
2011
Apr. 1
Issued the bonds for cash at their face amount.
Oct. 1
Paid the interest on the bonds.
2013
Oct. 1
Called the bond issue at 103, the rate provided in the bond indenture. (Omit entry for payment of interest.)
2011
Apr. 1
Cash
2,000,000
Bonds Payable
2,000,000
Oct. 1
Interest Expense
80,000
Cash
80,000
2013
Oct. 1
Bonds Payable
2,000,000
Cash
2,667,500
Discount on Bonds Payable
82,500
Bonds Payable
2,750,000
Interest Expense
8,250
Discount on Bonds Payable
8,250
Bonds Payable
2,750,000
Loss on Redemption of Bonds
2,750
Discount on Bonds Payable
57,750
Cash
2,695,000
181. Dennis Corp. issued $2,500,000 of 20-year, 9% callable bonds on July 1, 2007, with interest payable on
June 30 and December 31. The fiscal year of the company is the calendar year. Journalize the entries to record
the following selected transactions:
2007
July 1
Issued the bonds for cash at their face amount.
Dec. 31
Paid the interest on the bonds.
2011
Dec. 31
Called the bond issue at 97, the rate provided in the bond indenture. (Omit entry for payment of interest.)
182. On June 30, 2011, Arlington Company issued $1,500,000 of 10-year, 8% bonds, dated June 30, for
$1,540,000. Present entries to record the following transactions:
Arlington
Company
(1)
Issuance of bonds.
(2)
Payment of first semiannual interest on December 31, 2011.
(3)
Amortization by straight-line method of bond premium on December 31, 2011.
(1)
Cash
1,540,000
Premium on Bonds Payable
40,000
Bonds Payable
1,500,000
(2)
Interest Expense
60,000
Cash
60,000
(3)
Premium on Bonds Payable
2,000
Interest Expense
2,000
July 1
Cash
2,500,000
Bonds Payable
2,500,000
Dec. 31
Interest Expense
112,500
Cash
112,500
2011
Dec. 31
Bonds Payable
2,500,000
Gain on Redemption of Bonds
75,000
Cash
2,425,000
183.
(a)
Prepare the journal entry to issue $100,000 bonds which sold for $94,000.
(b)
Prepare the journal entry to issue $100,000 bonds which sold for $104,000.
184. Balance sheet and income statement data indicate the following:
Company A
Company B
Bonds payable, 8% (issued 1995, due 2019)
$1,200,000
$ 900,000
Preferred 5% stock, $100 par
(no change during year)
300,000
400,000
Common stock, $50 par
(no change during year)
1,000,000
1,000,000
Income before income tax for year
495,000
130,000
Income tax for year
75,000
12,000
Common dividends paid
50,000
0
Preferred dividends paid
21,000
28,000
(a)
For each company, what is the number of times bond interest charges were earned (round to one decimal place)?
(b)
Which company gives potential creditors the most protection?
(a)
Company A 6.2 Company B 2.8
(b)
Company A offers potential creditors the most protection.
Cash
94,000
Discount on Bonds Payable
6,000
Bonds Payable
100,000
Cash
104,000
Premium on Bonds Payable
4,000
Bonds Payable
100,000
185. Prepare an amortization schedule for the 1st 2 years (effective method) using the following data:
1. On January 1, 2010, ABC Co. issued $2,000,000, 5%, 10 year bonds, interest payable on June 30th and
December 31st to yield 6%. Use the following format and round to nearest dollar (may have small rounding
error). The bonds were issued for $1,851,234.
Date
Cash paid
Interest expense
Amortization
Bond carry Value
2. Show how this bond would be reported on the balance sheet at 12/31/11.
6/30/10
50,000
55,537
5,537
1,856,771
50,000
55,703
5,703
1,862,474
6/30/11
50,000
55,874
5,874
1,868,348
Unamortized bond discount
(125,602)
186. Prepare an amortization schedule for the 1st 2 years (straight line method) using the following data:
1. On January 1, 2010 XYZ Co. issued $3,000,000, 6%, 10 year bonds, interest payable on June 30th and
December 31st to yield 5%. Use the following format and round to the nearest dollar (may have small rounding
error). The bonds were issued for $3,233,834.
Date
Cash paid
Interest expense
Amortization
Bond Carry Value
2. Show how this bond would be reported on the balance sheet on 12/31/11.
6/30/10
90,000
78,308
11,692
3,222,142
90,000
78,308
11,692
3,210,450
6/30/11
90,000
78,308
11,692
3,198,758
Unamortized Bond Premium
187,066
187. On January 1, 2011, Citrus Retail Co. issued a $500,000, 5 year, 8% installment note payable with
payments of $100,000 principal plus interest due on January 1 of each year for the next 5 years.
1. Prepare the adjusting journal entry at December 31, 2011 to accrue interest for the year.
2. Show the account(s) and amount(s) and where it will appear on a multi-step income statement prepared on
December 31, 2011.
3. Show the account(s) and amount(s) and where they will appear on a classified balance sheet prepared on
December 31, 2011.
188. On January 1, 2010 Orange Retail Co. issued a $300,000, 3 year, 6% installment note payable with
payments of $100,000 principal and interest due on January 1st for each of the next 3 years.
1. Prepare the adjusting journal entry to accrue interest at the end of the 2nd year – 12/31/11.
2. Show the account(s) and amount (s) and where the account(s) will appear on a multi-step income statement
prepared on December 31, 2011.
3. Show the account(s) and amount(s) and where the account(s) will appear on a classified balance sheet
prepared on December 31, 2011.
189. Glover Corporation issued $2,000,000 of 7.5%, 6-year bonds dated March 1, 2011, with semiannual
interest payments on September 1 and March 1. The bonds were issued on March 1, 2011, at 97. Glover’s
year-end is December 31.
a) Were the bonds issued at a premium, a discount, or at par?
b) Was the market rate of interest higher, lower, or the same as the contract rate of interest?
c) If the company uses the straight-line method of amortization, what is the amount of interest expense Glover
Corporation will show for the year ended December 31, 2011?
d) What is the carrying value of the bonds on December 31, 2011?
190. Calculate the total amount of interest expense over the life of the bonds for the following independent
situations.
a) $100,000 face value, 10%, 10-year bonds issued at 101.
b) $240,000 face value, 5%, 5-year bonds issued at 100.
c) $300,000 face value, 9%, 6-year bonds issued at 98.