Entries for Issuing and CallingBonds; Gain

Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued $1,793,000 of 10-year, 8% callable bonds on May 1, 20Y1, at their face amount, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year.

Journalize the entries to record the following selected transactions:

20Y1

May1

Issued the bonds for cash at their face amount.

Nov.1

Paid the interest on the bonds.

20Y5

Nov.1

Called the bond issue at 96, the rate provided in the bond indenture. (Omit entry for payment of interest.)

Issued the bonds for cash at their face amount.

20Y1, May 1

Paid the interest on the bonds.

20Y1, Nov. 1

Called the bond issue at 96, the rate provided in thebond indenture. (Omit entry for payment of interest.) For a compound transaction, if an amount box does not require an entry, leave it blank.

20Y5, Nov. 1

Entries forInstallment NoteTransactions

On January 1, Year 1, Bryson Company obtained a $58,000, four-year, 10% installment note from Campbell Bank. The note requires annual payments of $18,297, beginning on December 31, Year 1.

a. amortization table for this installment note, similar to the one presented inExhibit 4.

Note: Round the computation of the interest expense to the nearest whole dollar. Enter all amounts as positive numbers. In Year 4, round the amount in theDecrease in Notes Payablecolumn either up or down to ensure that theCarrying Amountzeroes out.

Amortization of Installment Notes

Year Ending

December 31

January 1

Carrying Amount

Note Payment

(Cash Paid)

Interest Expense

(10% of January 1

Note Carrying

Amount)

Decrease in

Notes Payable

December 31

Carrying Amount

Year 1

$

$

$

$

$

Year 2

Year 3

Year 4

$

$

$

$

b.Journalize the entries for the issuance of the note and the four annual note payments.

Note: For a compound transaction, if an amount box does not require an entry, leave it blank. For the Year 4 entry (due to rounding), adjustNotes Payableup or down to ensure that debits equal credits.

Year 1 Jan. 1

Year 1 Dec. 31

Year 2 Dec. 31

Year 3 Dec. 31

Year 4 Dec. 31

c.How will the annual note payment be reported in the Year 1 income statement?

of $would be reported on the income statement.

Times interest earned

The following data were taken from recent annual reports of Caliber Company, which operates a low-fare airline service to more than 50 cities in the United States:

Current Year

Preceding Year

Interest expense

$75,000

$82,000

Income before income tax

480,000

360,800

a.Determine the times interest earned ratio for the current and preceding years. Round to one decimal place.

Current year

Preceding year

b.Although Caliber Company had enough earnings to pay interest in the preceding year, thein this ratio will beby the debtholders.

Entries for Issuing and Calling Bonds; Gain Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued $1,793,000 of 10-year, 8% callable bonds on May 1, 20Y1, at their face amount, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions: 20Y1 May 1 Issued the bonds for cash at their face amount. Nov. 1 Paid the interest on the bonds. 20Y5 Nov. 1 Called the bond issue at 96, the rate provided in the bond indenture. (Omit entry for payment of interest.) Issued the bonds for cash at their face amount. 20Y1, May 1 Paid the interest on the bonds. 20Y1, Nov. 1 Called the bond issue at 96, the rate provided in the bond indenture. (Omit entry for payment of interest.) For a compound transaction, if an amount box does not require an entry, leave it blank. 20Y5, Nov. 1Entries for Installment Note Transactions On January 1, Year 1, Bryson Company obtained a $58,000, four-year, 10% Installment note from Campbell Bank. The note requires annual payments of $18,297, beginning on December 31, Year 1. a. Prepare an amortization table for this Installment note, similar to the one presented In Exhibit 4. Note: Round the computation of the Interest expense to the nearest whole dollar. Enter all amounts as positive numbers. In Year 4, round the amount in the Decrease in Notes Payable column either up or down to ensure that the Carrying Amount zeroes out. Amortization of Installment Notes Interest Year Expense Ending January Note (10% of Decrease December December Payment January 1 in 31 Carrying (Cash Note Notes Carrying 31 Amount Paid) Carrying Payable Amount Amount) Year 1 $ Year 2 Year 3 Year 4 b. Journalize the entries for the issuance of the note and the four annual note payments. Note: For a compound transaction, If an amount box does not require an entry, leave it blank. For the Year 4 entry (due to rounding), adjust Notes Payable up or down to ensure that debits equal credits. Fear 1 Jan. 1 Year 1 Dec. 31 Year 2 Dec. 31 Year 3 Dec. 31 Year 4 Dec. 31c. How will the annual note payment be reported in the Year 1 income statement? of $ would be reported on the income statement. Times interest earned The following data were taken from recent annual reports of Caliber Company, which operates a low- fare airline service to more than 50 cities in the United States: Current Year Preceding Year Interest expense $75,000 $82,000 Income before income tax 480,000 360,800 3. Determine the times interest earned ratio for the current and preceding years. Round to one dE'El'gLEIQFE- ________________________________________________ I ____|____I.___ Current year E Preceding year J! b. Although Caliber Company had enough earnings to pay interest in the preceding year, the in this ratio will be by the debtholders