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PROBLEM 22.5B
POST.
REF.
1 2016 1
2 Oct. 1 10% Bonds Payable, 2023 400 0 0 0 00 2
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PAGE
CRITICAL THINKING PROBLEM 22.1
1. Vol Express, Inc. will realize $100,000 by reissuing the outstanding bonds as calculated below.
Annual interest payments @ 8% = $1,000,000 × 0.08 = $80,000
2. It would be advantageous to reissue the bonds at any time that the interest payments will be reduced
CRITICAL THINKING PROBLEM 22.2
Issuing Issuing
Common Stock Bonds
1. President’s estimated net income
before interest and taxes = $400,000
a. Net income before interest and taxes $400,000 $400,000
b. Total bond interest – 0 – 50,000
2.
a. Net income before interest and taxes $300,000 $300,000
b. Total bond interest – 0 – 50,000
3.
Financial VP’s estimate of net income before
interest and taxes = $300,000
This analysis suggests building the new wing regardless of funding source. Borrowing will maximize
the earnings per share, while issuing common stock will maximize net income. Since the president
Managerial Focus:
2. General debenture, callable bond payable.
4. Whenever market rates of interest have declined below the issue rate of its bonds.
Ethical Dilemma:
Financial Statement Analysis:
1. The long term debt-to-equity ratio for FY 2009 is 44.7%.
Teamwork:
If Lawrence is the sole decision-maker, this would be a conflict of interest. However, if Lawrence is simply
Because Nowhere Man’s liabilities are minimal, it would be best to sell bonds and retain control of its
SOLUTIONS TO BUSINESS CONNECTIONS
PAGE
POST.
REF.
1 2013
2 Jan. 5 Cash 101 101 0 0 0 00
3 Preferred Stock 301 100 0 0 0 00
4 Paid-in Capital—Preferred Stock 302 1000 00
5 Sold 1,000 shares of PS @ $101
16
17 July 1 Retained Earnings—Unappropriated 312 200000
18 Dividends Payable—Common Stock 207 200000
19 Declared common stock dividend of $0.10 per share
20
31 Cash 101 500000
32 Paid 6 months bond interest
33
MINI-PRACTICE SET 3: CORPORATION ACCOUNTING CYCLE
The Kansas Company
1GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
MINI-PRACTICE SET 3 (continued) Name
PAGE
GENERAL JOURNAL 2
MINI-PRACTICE SET 3 (continued) Name
PAGE
POST.
REF.
1 2013
2 Dec. 30 Retained Earnings—Unappropriated 312 100 0 0 0 00
3 Retained Earnings—Appropriated 311 100 0 0 0 00
4 Appropriated for plant expansion
5
6 31 Accounts Receivable 103 2,800 0 0 0 00
7 Sales 401 2,800 0 0 0 00
8 Sales on account for year
9
20 Operating expenses incurred on credit
21
22 31 Accounts Payable 202 2,335 0 0 0 00
23 Cash 201 2,335 0 0 0 00
24 Payments on account for year
3GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
MINI-PRACTICE SET 3 (continued) Name
PAGE
POST.
REF.
1 2013
2 Dec. 31 Operating Expenses 601 950000
3 Allowance for Doubtful Accounts 104 9500 00
4
5 31 Operating Expenses 601 11 2 5 0 00
6 Accumulated Depreciation—Bldg 152 11 2 5 0 00
17
18 31 Income Summary 399 150 0 0 0 00
19 Merchandise Inventory 131 150 0 0 0 00
20
21 31 Merchandise Inventory 131 130 0 0 0 00
Adjusting Entries
GENERAL JOURNAL 4
DATE DESCRIPTION DEBIT CREDIT
MINI-PRACTICE SET 3 (continued) Name
PAGE
POST.
REF.
1 2013
2 Dec. 31 Sales 401 2,800 0 0 0 00
3 Gain on Early Retirement of Bonds Payable 711 8 7 0 00
4 Income Summary 399 2,800 8 7 0 00
5
6 31 Income Summary 399 2,635 0 5 5 00
Closing Entries
GENERAL JOURNAL 5
DATE DESCRIPTION DEBIT CREDIT
MINI-PRACTICE SET 3 (continued)
ACCOUNT Cash ACCOUNT NO.
2013
Jan. 1 Balance ✔17600000
5 J1 10100000 27700000
31 J3 2,33500000 64486700
ACCOUNT Accounts Receivable ACCOUNT NO.
2013
Jan. 1 Balance ✔17000000
Dec. 31 J3 2,80000000 2,97000000
ACCOUNT ACCOUNT NO.
2013
GENERAL LEDGER
CREDIT
BALANCE
101
CREDIT
103
DATE
DESCRIPTION
POST.
REF. DEBIT CREDIT DEBIT
Allowance for Doubtful Accounts
CREDIT
104
DEBIT
BALANCE
DEBITDEBIT
DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DATE DESCRIPTION
POST.
REF. CREDIT
DATE
MINI-PRACTICE SET 3 (continued)
ACCOUNT Subscriptions Receivable—Common Stock ACCOUNT NO.
2013
ACCOUNT Interest Receivable ACCOUNT NO.
ACCOUNT Merchandise Inventory ACCOUNT NO.
2013
ACCOUNT Land ACCOUNT NO.
141
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
131
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
121
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
105
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
MINI-PRACTICE SET 3 (continued)
ACCOUNT Buildings ACCOUNT NO.
2013
ACCOUNT Accumulated Depreciation—Buildings ACCOUNT NO.
2013
ACCOUNT Furniture and Equipment ACCOUNT NO.
2013
ACCOUNT Accumulated Depreciation—Furniture and Equipment ACCOUNT NO.
2013
162
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANC
E
DEBIT CREDIT
161
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANC
E
DEBIT CREDIT
152
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
151
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANC
E
DEBIT CREDIT
MINI-PRACTICE SET 3 (continued)
ACCOUNT Organization Costs ACCOUNT NO.
2013
ACCOUNT Accounts Payable ACCOUNT NO.
2013
Jan. 1 Balance ✔75 0 0 0 00
ACCOUNT Interest Payable ACCOUNT NO.
2013
Jan. 1 Balance ✔250000
ACCOUNT Estimated Income Taxes Paya
b
ACCOUNT NO.
2013
205
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
203
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
202
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
181
MINI-PRACTICE SET 3 (continued)
ACCOUNT Dividends Payable—Preferred Stock ACCOUNT NO.
2013
ACCOUNT Dividends Payable—Common Stock ACCOUNT NO.
2013
ACCOUNT 10-Year, 10% Bonds Payable ACCOUNT NO.
2013
ACCOUNT Premium on Bonds Payable
2013
Jan. 1 Balance ✔262500
April 1 7 5 00 255000
212
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
211
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
207
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANC
E
DEBIT CREDIT
206
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANC
E
DEBIT CREDIT
