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Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued $25,000,000 of 5-year, 11% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 12%, resulting in Ebert Company receiving cash of $25,043,329. The company uses the interest method. a. Journalize the entries to record the following: 1. Sale of the bonds. Round amounts to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank. Cash 25,043,329 Discount on Bonds Payable 956,6717 Bonds Payable 26,000,000 Feedback 2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank. Interest Expense 1.502.600 Discount on Bonds Payable 72.000 Cash 1.430,000 Feedback 3. Second semiannual interest payment, including amortization of discount. Round to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank. Interest Expense Discount on Bonds Payable Cash 1.430,000 Feedback b. Compute the amount of the bond interest expense for the first year. Round amounts to the nearest dollar. Annual interest paid 26,000,000 X Discount amortized Interest expense for first year Alternative Financing Plans Frey Co. is considering the following alternative financing plans: Plan 1 Plan 2 Issue 10% bonds (at face value) $1,520,000 $760,000 Issue preferred $1 stock, $10 par 1,260,000 Issue common stock, $5 par 1,520,000 1,020,000 Income tax is estimated at 40% of income. Determine the earnings per share on common stock, assuming that income before bond interest and income tax is $456,000. Enter answers in dollars and cents, rounding to two decimal places. s Earnings per share on common stock Earnings per share on common stock Plan 1 Plan 2 S Compute Bond Proceeds, Amortizing Premium by Interest Method, and Interest Expense Ware Co. produces and sells motorcycle parts. On the first day of its fiscal year, Ware Co. issued $50,000,000 of three-year, 14% bonds at a market (effective) interest rate of 12%, with interest payable semiannually. Compute the following: a. The amount of cash proceeds from the sale of the bonds. Use the tables of present values in Exhibit 8 and Exhibit 10. Round to the nearest dollar. 53,680 x b. The amount of premium to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar. 279 X c. The amount of premium to be amortized for the second semiannual interest payment period, using the interest method. Round to the nearest dollar. 296 X d. The amount of the bond interest expense for the first year. Round to the nearest dollar. 6,425 x Present Value of $1 at Compound Interest EXHIBIT 8 Periods 1 2 3 wN 4 5 6 7 8 9 10 4% 0.96154 0.92456 0.88900 0.85480 0.82193 0.79031 0.75992 0.73069 0.70259 0.67556 472% 0.95694 0.91573 0.87630 0.83856 0.80245 0.76790 0.73483 0.70319 0.67290 0.64393 5% 0.95238 0.90703 0.86384 0.82270 0.78353 0.74622 0.71068 0.67684 0.64461 0.61391 572% 0.94787 0.89845 0.85161 0.80722 0.76513 0.72525 0.68744 0.65160 0.61763 0.58543 6% 0.94340 0.89000 0.83962 0.79209 0.74726 0.70496 0.66506 0.62741 0.59190 0.55839 67% 0.93897 0.88166 0.82785 0.77732 0.72988 0.68533 0.64351 0.60423 0.56735 0.53273 7% 0.93458 0.87344 0.81630 0.76290 0.71299 0.66634 0.62275 0.58201 0.54393 0.50835 10% 0.90909 0.82645 0.75131 0.68301 0.62092 0.56447 0.51316 0.46651 0.42410 0.38554 11% 0.90090 0.81162 0.73119 0.65873 0.59345 0.53464 0.48166 0.43393 0.39092 0.35218 12% 0.89286 0.79719 0.71178 0.63552 0.56743 0.50663 0.45235 0.40388 0.36061 0.32197 13% 0.88496 0.78315 0.69305 0.61332 0.54276 0.48032 0.42506 0.37616 0.33288 0.29459 EXHIBIT 10 Present Value of an Annuity of $1 at Compound Interest 4% 6% 7% Periods 1 2 3 UwN 5 6 7 8 0.96154 1.88609 2.77509 3.62990 4.45182 5.24214 6.00205 6.73274 7.43533 8.11090 47% 0.95694 1.87267 2.74896 3.58753 4.38998 5.15787 5.89270 6.59589 7.26879 7.91272 5% 0.95238 1.85941 2.72325 3.54595 4.32948 5.07569 5.78637 6.46321 7.10782 7.72173 572% 0.94787 1.84632 2.69793 3.50515 4.27028 4.99553 5.68297 6.33457 6.95220 7.53763 0.94340 1.83339 2.67301 3.46511 4.21236 4.91732 5.58238 6.20979 6.80169 7.36009 672% 0.93897 1.82063 2.64848 3.42580 4.15568 4.84101 5.48452 6.08875 6.65610 7.18883 0.93458 1.80802 2.62432 3.38721 4.10020 4.76654 5.38929 5.97130 6.51523 7.02358 10% 0.90909 1.73554 2.48685 3.16987 3.79079 4.35526 4.86842 5.33493 5.75902 6.14457 11% 0.90090 1.71252 2.44371 3.10245 3.69590 4.23054 4.71220 5.14612 5.53705 5.88923 12% 0.89286 1.69005 2.40183 3.03735 3.60478 4.11141 4.56376 4.96764 5.32825 5.65022 13% 0.88496 1.66810 2.36115 2.97447 3.51723 3.99755 4.42261 4.79677 5.13166 5.42624 9 10
