Alternative Financing Plans

Frey Co. is considering the following alternative financing plans:

	Plan 1		Plan 2
Issue 10% bonds (at face value)	$1,960,000		$980,000
Issue preferred $1 stock, $10 par			1,630,000
Issue common stock, $5 par	1,960,000		1,310,000

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 $588,000.

Enter answers in dollars and cents, rounding to two decimal places.

Plan 1	$ Earnings per share on common stock
Plan 2	$ Earnings per share on common stock

2.

Issuing Bonds at a Face Amount

On January 1, the first day of the fiscal year, a company issues a $200,000, 9%, 10-year bond that pays semiannual interest of $9,000 ($200,000 9% year), receiving cash of $200,000.

(a) Journalize the entry to record the issuance of the bonds.

	Interest Expense

(b) Journalize the entry to record the first interest payment on June 30.

	Cash

(c) Journalize the entry to record the payment of the principal on the maturity date.

3.

Discount Amortization

On the first day of the fiscal year, a company issues a $6,700,000, 10%, 10-year bond that pays semiannual interest of $335,000 ($6,700,000 10% ), receiving cash of $5,931,516.

Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

	Interest Expense
	Discount on Bonds Payable
	Cash