On January 1, 2011, Datalink Inc. issued $100,000, 10%, 10-year bonds when the market rate of interest was 8%. Interest is payable on June 30 and December 31. The following financial information is available:

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?

Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,500)

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (82,000)

Net income . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?

All purchases of inventory are on account. Other expenses are paid for in cash.

Instructions:
1. Prepare the journal entry to record the issuance of the bonds on January 1, 2011.
2. Compute
(a) The amount of cash paid to bondholders for interest during 2011,
(b) The amount of premium amortized during 2011, assuming Datalink uses the straight-line method for amortizing bond premiums and discounts, and
(c) The amount of interest expense for 2011.
3. Prepare the Cash Flows from Operating Activities section of Datalink's statement of cash flows using
(a) The direct method and
(b) The indirectmethod.

Transcribed Image Text:

Dec. 31, 2011 Jan. 1, 2011 Accounts receivable $55,000 87,000 60,000 $48,000 93,000 58,000 Accounts payable