Prepare journal entries pertaining to bonds, discount amortizations, and compute earnings per share

#1) The following amortization schedule reflects the issuance of 10 year bonds by Terrel Brandon Corporation on January 1, 2000, and the subsequent interest payments and charges. The company's year end is December 31, and financial statements are prepared once a yearly. Amortization Schedule Year Cash Interest 1/1/2000 Unamortized Amt. Book Value $ 5,651 $ 94,349 2000 $ 11,000 $ 11,322 $ 5,329 $ 94,671 2001 $ 11,000 $ 11,361 $ 4,968 $ 95,032 2002 $ 11,000 $ 11,404 $ 4,564 $ 95,436 2003 $ 11,000 $ 11,452 $ 4,112 $ 95,888 2004 $ 11,000 $ 11,507 $ 3,605 $ 96,395 2005 $ 11,000 $ 11,567 $ 3,038 $ 96,962 2006 $ 11,000 $ 11,635 $ 2,403 $ 97,597 2007 $ 11,000 $ 11,712 $ 1,691 $ 98,309 2008 $ 11,000 $ 11,797 $ 894 $ 99,106 2009 $ 11,000 $ 11,894 $ 100,000 Instructions: 1. Indicate whether the bonds were issued at a premium or a discount and how you can determine this fact from the schedule. 2. Indicate whether the amortization schedule is based on the straight-line or effective interest method and how you can determine which method is used. 3. Determine the stated interest rate and the effective interest rate. 4. On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2000. 5. On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2000. (Interest is paid January 1.) 6. On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2007. Brandon Corporation does not use reversing entries. #2) 1 Danny Ferry Co. sells $250,000 of 10% bonds on March 1, 2007. The bonds pay interest on September 1 and March 1. The due date of the bond is September 1, 2010. The bonds yield 12%. Give entries through December 31, 2008. Round to the nearest dollar Instructions: Prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective interest method for discount amortization. Amortize discount on interest dates and at year end. (Assume the no reversing entries are made.) Account/Description Debit Credit Discount Amortized Carrying Amount Bond Amortization Schedule Date Cash Paid Interest Expense #3) 2 Flagstad Inc. presented the following data: Description Date (1.) Net Income (2.) Preferred Stock; 50,000 shares outstanding. $100 par, 8% cumulative, not convertible. (3.) Common Stock; shares outstanding (4.) Common stock issued for cash (5.) Acquired Treasury Stock for cash (6.) 2 for 1 Stock Split $ Amount $2,500,000 1-Jan 1-May 1-Aug 1-Oct 5,000,000 750,000 300,000 150,000 Instructions: Compute earnings per share. Event Date Outstanding Shares Outstanding Restatement Fraction Year Weighted Shares Beginning balance > Weighted Ave. No. shares outstanding Net Income Preferred Dividends Adjusted Net Income 3 #1) The following amortization schedule reflects the issuance of 10 year bonds by Terrel Brandon Corporation on January 1, 2000, and the subsequent interest payments and charges. The company's year end is December 31, and financial statements are prepared once a yearly. Amortization Schedule Year Cash Interest 1/1/2000 Unamortized Amt. Book Value $ 5,651 $ 94,349 2000 $ 11,000 $ 11,322 $ 5,329 $ 94,671 2001 $ 11,000 $ 11,361 $ 4,968 $ 95,032 2002 $ 11,000 $ 11,404 $ 4,564 $ 95,436 2003 $ 11,000 $ 11,452 $ 4,112 $ 95,888 2004 $ 11,000 $ 11,507 $ 3,605 $ 96,395 2005 $ 11,000 $ 11,567 $ 3,038 $ 96,962 2006 $ 11,000 $ 11,635 $ 2,403 $ 97,597 2007 $ 11,000 $ 11,712 $ 1,691 $ 98,309 2008 $ 11,000 $ 11,797 $ 894 $ 99,106 2009 $ 11,000 $ 11,894 $ 100,000 Instructions: 1. Indicate whether the bonds were issued at a premium or a discount and how you can determine this fact from the schedule. The book value of the issued bond at the beginning is 94,349 while the ending book value of the bond is 100,000.This clearly shows that the bond was issued at a discount and not on premium. 2. Indicate whether the amortization schedule is based on the straight-line or effective interest method and how you can determine which method is used. The amortization schedule is based on effective interest method. This is because the straight line method results to an interest amount of 11565.10(11000/ (5651/10)) each year in the life time of the bonds. 3. Determine the stated interest rate and the effective interest rate. Stated interest rate =(11,000/100,000)=11% Effective -interest rate=(11000/94349)=12% 4. On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2000. 01/01/2006 Dr Cash 94,349 Dr Discount on bonds payable 5,651 Cr Bonds payable 100,000 5. On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2000. (Interest is paid January 1.) Dr Interest expense 11,322 Cr Discount on bonds payable 322 Cr Interest Payable 11,000 1 6. On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2007. Brandon Corporation does not use reversing entries. Dr Interest expense 11,712 Cr Discount on bonds payable 712 Cr Interest Payable 11,000 #2) Danny Ferry Co. sells $250,000 of 10% bonds on March 1, 2007. The bonds pay interest on September 1 and March 1. The due date of the bond is September 1, 2010. The bonds yield 12%. Give entries through December 31, 2008. Round to the nearest dollar Instructions: Prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective interest method for discount amortization. Amortize discount on interest dates and at year end. (Assume the no reversing entries are made.) Account/Description Cash Debit Credit 236,045 Discounts on bonds payable 13,955 Bonds payable 250,000 9/1/2007 Interest expense 14,163 Discount on bonds payable 1,663 Cash 12,500 12/31/2007 Interest expense 9,508 Discount on bonds payable 1,175 Interest payable 8,333 3/1/2008 Interest 4,754 Interest Payable 8,333 Discount on bonds payable 587 Cash 12,500 9/1/2008 Interest expense 14,368 Discount on bonds payable Cash 12/31/2008 Interest expense 1,868 12,500 9,653 2 Discounts on bonds payable Interest payable 1320 8,333 Bond Amortization Schedule Date Cash Paid Interest Expense Discount Amortized 3/1/07 Carrying Amount 236,045 9/1/07 12,500 14,163 1,663 237,708 3/1/08 12,500 14,262 1,762 239,470 9/1/08 12,500 14,368 1,868 241,338 3/1/09 12,500 14,480 1,980 243,318 9/1/09 12,500 14,599 2,099 245,417 3/1/10 12,500 14,725 2,225 247,642 9/1/10 12,500 14,858 2,358 250,000 #3) Flagstad Inc. presented the following data: Description (1.) Net Income (2.) Preferred Stock; 50,000 shares outstanding. $100 par, 8% cumulative, not convertible. (3.) Common Stock; shares outstanding (4.) Common stock issued for cash (5.) Acquired Treasury Stock for cash (6.) 2 for 1 Stock Split Date $ Amount $2,500,000 1-Jan 1-May 1-Aug 1-Oct 5,000,000 750,000 300,000 150,000 Instructions: Compute earnings per share. 3 Event Date Outstanding Shares Outstanding Restatement Fraction Year Weighted Shares Beginning balance > JAN 1-MAY 1 750,000 2 4/12 500,000 Issued Shares MAY 1-AUG 1 1,050,000 2 3/12 525,000 Reacquired shares AUG 1-OCT 1 900,000 2 2/12 300,000 Stock split OCT 1- DEC 31 1,800,000 1 3/12 450,000 Weighted Ave. No. shares outstanding 1,775,000 Net Income 2,500,000 Preferred Dividends 400,000 Adjusted Net Income 2,100,000 Earnings per share=2100000/1775000 =>1.18 4