The Jeff Co issued $100,000, six year bonds, carrying a coupon rate of ten percent...
Prepare journal entries for the following FOUR events (use straight-line amortization).
01/01/07 The Jeff Co issued $100,000, six year bonds, carrying a coupon rate of ten percent (10%), interest payable annually on December 31 each year. Assume that the net proceeds from the issue of the bond were $112,000.
12/31/07 Recognize the first interest payment.
12/31/08 Recognize the second interest payment.
01/01/09 Redeem (ie, buy back) twenty percent (20%) of the bonds outstanding for $18,500.
II. Is it better for a company to issue bonds at a discount or at a premium? Explain your answer.
III. Use the data from Problem V. For the most recent year (2008) calculate the following ratios.
Current ratio
Inventory turnover
Rate of return on total assets
Accounts receivable turnover (assume all sales are on account)
Debt ratio
IV. Prepare journal entries for ABC Co’s following events.
05/12/08 Received charter authorizing ABC Co to issue 20,000 shares of common stock at a par value of $2 per share.
06/03/08 Issued 8,000 shares of stock, receiving $40,000.
06/04/08 Paid the law firm of Lobello for their services to help organize the company by sending them two thousand shares of stock.
11/15/08 Declared a cash dividend of $2 per share, payable on 01/15/09, to holders of record as of 12/15/08.
12/15/08 Make the appropriate entry.
12/31/08 Make any necessary adjusting entry.
01/15/09 Make the appropriate entry.
06/12/09 Declared a ten percent (10%) stock dividend, payable on 7/15/09 (ignore the date of record for this event). The market value of the stock is $15 per share.
07/15/09 Make the appropriate entry.
08/15/09 Declared a two-for-one stock split. The market value of the stock is $15 per share.
09/15/09 Declared and paid a cash dividend of $2 per share (pretend this happens all in one day).
10/01/09 Purchased 1,000 shares of treasury stock for a total price of $30,000.
10/15/09 Declared and paid a cash dividend of $2 per share.
11/15/09 Reissued 400 shares of treasury stock at $32 each.
12/15/09 Reissued the remaining treasury stock at $10 per share.
V. Required
Prepare a cash flow statement for 2008 with clear documentation (ie, show your work) for each section of the statement. Use either the direct or the indirect method.
Additional information
There were no write-offs of delinquent accounts during the year.
A building was sold during the year for $80.
Comparative balance sheets and an income statement for 2008 are presented below for NLeash Company.
NLeash Company
Comparative Balance Sheets and Income Statement
For the Years 2007 and 2008
Balance Sheets 2008 2007
Assets
Cash 200 185
Accounts Receivable 350 290
Allowance for bad debts (45) (25)
Inventory 260 135
Land 600 500
Buildings 295 250
Accumulated Depreciation- Buildings (65) (80)
Total Assets 1,595 1,255
Liabilities & Owner’s Equity
Liabilities
Accounts Payable 400 305
Wages Payable 70 67
Dividends Payable 30 47
Taxes Payable 50 46
Long-term bonds payable 100 100
Discount on bonds payable (8) (10)
Total liabilities 642 555
Owner’s Equity
Common Stock 650 500
Retained Earnings 303 200
Total Owner’s Equity 953 700
Total Liabilities & Owner’s Equity 1,595 1,255
Income Statement (2008)
Revenue 1,200
Cost of Goods Sold 750
Gross Margin 450
Operating Expenses
Wage expense 200
Depreciation expense 30
Bad debt expense 20
Bond interest expense 10
Total operating expenses 260
Net Operating Income 190
Gain on sale of building 40
Net income before tax 230
Income tax 69
Net income after tax 161
12/31/08
01/15/09
06/12/09
07/15/09
08/15/09
09/15/09
10/01/09
10/15/09
11/15/09
12/15/09
V. (30 points)
-
Rating:
/5
Solution: The Jeff Co issued $100,000, six year bonds, carrying a coupon rate of ten percent...