1-A

On January 1, Year 1, Young Company issued bonds with a face value of $104,000, a stated rate of interest of 13 percent, and a 10-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 12 percent at the time the bonds were issued. The bonds sold for $109,876. Young used the effective interest rate method to amortize the bond premium. Required a. Determine the amount of the premium on the day of issue. b. Determine the amount of interest expense recognized on December 31, Year 1. c. Determine the carrying value of the bond liability on December 31, Year 1. d. Provide the general journal entry necessary to record the December 31, Year 1, interest expense.

1-B

The following information pertains to Austin, Incorporated and Huston Company.

Account Title	Austin	Huston
Current assets	$ 90,000	$ 87,500
Total assets	320,000	680,000
Current liabilities	29,250	43,750
Total liabilities	210,000	530,000
Stockholders equity	290,000	150,000
Interest expense	17,800	21,200
Income tax expense	35,600	30,800
Net income	90,000	93,700

Required a-1. Compute each companys debt-to-assets ratio, current ratio, and times interest earned (EBIT must be computed). a-2. Which company has the greater financial risk? b. Compute each companys return-on-equity ratio and return-on-assets ratio. Use EBIT instead of net income when computing the return-on-assets ratio.