general business data bank

Ex. 186

On January 1, Focus Corporation issued $600,000, 12%, 5-year bonds at face value. Interest is payable semiannually on July 1 and January 1.

Instructions

Prepare journal entries to record the

(a) Issuance of the bonds.

(b) Payment of interest on July 1, assuming no previous accrual of interest.

(c) Accrual of interest on December 31.

Ex. 187

The following section is taken from Blue Corp’s balance sheet at December 31, 2011.

Current liabilities

Interest Payable............................................................ $ 90,000

Long-term liabilities

Bonds Payable, 9%, due January 1, 2016 .................. 2,000,000

Interest is payable semiannually on January 1 and July 1. The bonds are callable on any interest date.

Ex. 187 (Cont.)

Instructions

(a) Journalize the payment of the bond interest on January 1, 2012.

(b) Assume that on January 1, 2010, after paying interest, Blue calls bonds having a face value of $800,000. The call price is 106. Record the redemption of the bonds.

(c) Prepare the entry to record the payment of interest on July 1, 2012, assuming no previous accrual of interest on the remaining bonds.

Ex. 188

Niebuhr Company issued$500,000 of bonds on January 1, 2012.

Instructions

(a) Prepare the journal entry to record the retirement of the bonds at maturity, assuming the bonds were issued at 100.

(b) Prepare the journal entry to record the retirement of the bonds before maturity at 97. Assume the balance in Premium on Bonds Payable is $5,000.

(c) Prepare the journal entry to record the conversion of the bonds into 15,000 shares of $10 par value common stock. Assume the bonds were issued at par.

20,000

Solution 188 (Cont.)

Ex. 189

Casey Company retired $500,000 face value, 9% bonds on June 30, 2012 at 96. The carrying value of the bonds at the redemption date was $508,000.

Instructions

Prepare the journal entry to record the redemption of the bonds.

Ex. 190

Presented below are three independent situations:

(a) Strike Corporation purchased $350,000 of its bonds on June 30, 2012, at 102 and immediately retired them. The carrying value of the bonds on the retirement date was $339,500. The bonds pay semiannual interest and the interest payment due on June 30, 2012, has been made and recorded.

(b) Worton, Inc. purchased $400,000 of its bonds at 97 on June 30, 2012, and immediately retired them. The carrying value of the bonds on the retirement date was $393,000. The bonds pay semiannual interest and the interest payment due on June 30, 2012, has been made and recorded.

(c) Mountain Company has $80,000, 10%, 12-year convertible bonds outstanding. These bonds were sold at face value and pay semiannual interest on June 30 and December 31 of each year. The bonds are convertible into 40 shares of Mountain $5 par value common stock for each $1,000 par value bond. On December 31, 2012, after the bond interest has been paid, $20,000 par value of bonds were converted. The market value of Mountain’s common stock was $38 per share on December 31, 2012.

Instructions

For each of the independent situations, prepare the journal entry to record the retirement or conversion of the bonds.

Ex. 191

Douglas Company issued a $3,500,000, 10%, 10-year mortgage note payable to finance the construction of a building at December 31, 2012. The terms provide for semiannual installment payments of $200,608.

Instructions

Prepare the entry to record:

(a) the mortgage loan on December 31, 2012.

(b) the first installment payment.

Ex. 192

Adams Corporation issues a $4,500,000, 12%, 20-year mortgage note payable on December 31, 2012, to obtain needed financing for the construction of a building addition. The terms provide for semiannual installment payments of $309,409 on June 30 and December 31.

Ex. 192 (Cont.)

Instructions

(a) Prepare the journal entries to record the mortgage loan on December 31, 2012, and the first installment payment.

(b) Will the amount of principal reduction in the second installment payment be more or less than with the first installment payment?

Ex. 193

Lucky Company borrowed $750,000 on January 1, 2012, by issuing $800,000, 8% mortgage note payable. The terms call for semiannual installment payments of $60,000 on June 30 and December 31.

Instructions

(a) Prepare the journal entries to record the mortgage loan and the first two installment payments.

(b) Indicate the amount of mortgage note payable to be reported as a current liability and as a long-term liability at December 31, 2012.

)]

Long-term: $685,920 [($800,000 – $28,000 – $29,120) – $56,960]

Ex. 194

Presented below are three different aircraft lease transactions that occurred for Northwest Airways in 2012. All the leases start on January 1, 2012. In no case does Northwest receive title to the aircraft during or at the end of the lease period; nor is there a bargain purchase option.

Lessor

Oxford Insurance Goin Leasing Flagg Leasing

Type of property 747 Aircraft 727 Aircraft L-1011 Aircraft

Yearly rental $8,508,645 $6,357,660 $2,851,861

Lease term 15 years 15 years 20 years

Estimated economic life 25 years 25 years 25 years

Fair value of

leased asset $79,200,000 $63,000,000 $32,000,000

Present value of lease

rental payments $72,000,000 $54,000,000 $28,000,000

Instructions

(a) Which of the above leases are operating leases and which are capital leases? Explain your answer.

(b) How should the lease transaction with Oxford Insurance be recorded in 2012?

(c) How should the lease transaction with Goin Leasing be recorded in 2012?

Ex. 195

Echo Corporation entered into the following transactions:

1. On January 1, 2012 Grant Car Rental leased a car to Echo Corporation for one year. Terms of the operating lease call for monthly payments of $650.

2. On January 1, 2012, Echo Corporation entered into an agreement to lease 20 machines from Weiss Corporation. The terms of the lease agreement require an initial payment of $500,000 and then three annual rental payments of $600,000 beginning on December 31, 2012. The present value of the three rental payments is $1,492,108. The lease is a capital lease.

Instructions

Prepare the appropriate journal entries to be made by Echo Corporation in January related to the lease transactions.

Ex. 196

On January 1, 2012, Malcolm Inc. entered into an agreement to lease equipment from Finley Corporation. The lease agreement requires five annual rental payments of $90,000 beginning December 31, 2012. The present value of the rental payments is $341,172. The lease transfers substantially all the benefits and risks of ownership toMalcolm.

Instructions

Prepare the entry to record the lease agreement on the books of Malcolm Inc. on January 1, 2012.

Ex. 197

The adjusted trial balance for Perry Corporation at the end of 2012 contained the following accounts:

Bonds payable, 10%.............................................................. $700,000

Interest payable..................................................................... 20,000

Discount on bonds payable................................................... 40,000

Lease liability.......................................................................... 50,000

Mortgage notes payable, 9%, due 2015................................ 90,000

Accounts payable.................................................................. 120,000

^aEx. 197 (Cont.)

Instructions

(a) Prepare the long-term liabilities section of the balance sheet.

(b) Indicate the proper balance sheet classification for the accounts listed above that do not belong in the long-term liabilities section.

Ex. 198

Ranger Corporation reports the following amounts in their 2012 financial statements:

At December 31, 2012 For the Year 2012

Total assets $2,000,000

Total liabilities 1,130,000

Total stockholders’ equity ?

Interest expense $20,000

Income tax expense 130,000

Net income 150,000

Instructions

(a) Compute the December 31, 2012, balance in stockholders’ equity.

(b) Compute the debt to total assets ratio at December 31, 2012.

(c) Compute times interest earned for 2012.

^aEx. 199

Boxer Corporation is issuing $600,000 of 8%, 5-year bonds when potential bond investors want a return of 10%. Interest is payable semiannually. The present value of 1 factors are 4%, .67556 and 5%, .61391. The present value of an annuity factors are 4%, 8.1109 and 5%, 7.72173.

Instructions

Compute the market price (present value) of the bonds.

^aEx. 200

On January 1, 2012, Plank Corporation issued $800,000, 9%, 5-year bonds for $769,112. The bonds were sold to yield an effective-interest rate of 10%. Interest is paid semiannually on June 30 and December 31. The company uses the effective-interest method of amortization.

Instructions

(a) Prepare a bond discount amortization schedule which shows the amortization of discount for the first two interest payment dates. (Round to the nearest dollar.)

(b) Prepare the journal entries thatPlank Corporation would make on January 1, June 30, and December 31, 2012, related to the bond issue.

^aEx. 201

On June 30, 2012, Upton, Inc. sold $3,000,000 (face value) of bonds. The bonds are dated June 30, 2012, pay interest semiannually on December 31 and June 30, and will mature on June 30, 2015. The following schedule was prepared by the accountant for 2012.

Semi-Annual Interest to Interest Unamortized Bond

Interest Period be Paid Expense Amortization Amount Carrying Value

$75,000 $2,925,000

1 $120,000 $131,625 $11,625 63,375 1,936,625

Instructions

On the basis of the above information, answer the following questions. (Round your answer to the nearest dollar or percent.)

1. What is the stated interest rate for this bond issue?

2. What is the market interest rate for this bond issue?

3. What was the selling price of the bonds as a percentage of the face value?

4. Prepare the journal entry to record the sale of the bond issue on June 30, 2012.

5. Prepare the journal entry to record the payment of interest and amortization on December 31, 2012.

^aEx. 202

On January 1, 2012, Sunrise Corporation issued $4,000,000, 9%, 5-year bonds dated January 1, 2012, at 94. The bonds pay semiannual interest on January 1 and July 1. The company uses the straight-line method of amortization and has a calendar year end.

Instructions

Prepare all the journal entries that Sunrise Corporation would make related to this bond issue through January 1, 2013. Be sure to indicate the date on which the entries would be made.

^aEx. 203

Venture Company issued $600,000, 10%, 20-year bonds on January 1, 2012, at 103. Interest is payable semiannually on July 1 and January 1. Venture uses the straight-line method of amortization and has a calendar year end.

Instructions

Prepare all journal entries made in 2012 related to the bond issue.

^aEx. 204

Magic Company issued $500,000, 10%, 10-year bonds on December 31, 2012, for $460,000. Interest is payable semiannually on June 30 and December 31. Magic uses the straight-line method of amortization and has a calendar year end.

Instructions

Prepare the appropriate journal entries on

(a) December 31, 2012.

(b) June 30, 2013.