Question
Problem 1(5 Points) The Sleepy Corporation needs to raise $4,000,000 of funds in order to build a factory. The factory will generate $2,000,000 of net
Problem 1(5 Points)
The Sleepy Corporation needs to raise $4,000,000 of funds in order to build a factory. The factory will generate $2,000,000 of net income before interest and taxes. The corporation is exploring two alternatives to raising the needed funds:
a. Issue an additional 200,000 shares of common stock
b. Issue $4,000,000 of 9% Bonds
Other facts:
Common stock currently outstanding: 100,000 shares
Tax Rate: 20%
Instructions: Calculate the earnings per share under each alternative
Problem 2 (10Points)
The Sleepy Corporation issued $1,000,000 of ten year bonds on January 1, 2019. The interest rate on the bonds is 9%, and the interest is paid semi-annually on July 1 and January of each year. The bonds were issued at 102. The straight-line method for amortizing discounts and premiums is used.
a. Were the bonds issued at a discount or premium?
b. Prepare the journal entries on
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January 1, the date the bonds were issued
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December 31, 2019, for the year end journal entry to record interest expense and amortization of discount/premium
c. Calculate the total amount of interest expense on the 2019 income statement.
d. Calculate the carry value of the bonds on December 31, 2019
PROBLEM 3
For the following independent cases, in the space provided, calculate the amount of revenue that should be recorded in 2019 under the revenue recognition principle (point of sale).
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Company A rents office space to tenants. On October 1, 2019 they collected $18,000 from a tenant which represents 12 months rent paid in advance.
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Company B sells heavy equipment. On December 1, 2019 a customer paid a $10,000 deposit towards the purchase of a $50,000 piece of equipment. The equipment was delivered on January 16, 2020 and the balance was paid that date.
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On December 29, 2019 Company C ships $15,000 worth of goods to a customer, F. O.B. destination. The goods arrive on January 3, 2020at the customers office. The customer pays for the goods On February 1, 2020.
4. Company D provides legal services for clients. On December 2, 2019 a client hires the firm and pays a $10,000 advance payment. The firm did $4,000 of service in 2019.
Problem 1 Bonds Common Stock Net Income before Interest and Tax $ 2,000,000 $ 1 2 3 2,000,000 1 2 3 4 4 5 6 16 7 7 8 8 9 9 # # # 10 11 12 13 14 15 # # # # 16 Problem 2 Date Account Titles Debit Credit 1 1(a) 2 3||(6)1. 2 3 4 14 5 16 5 6||(6)2. 7 8 9 10 17 8 9 10 11||c. 12 13 11 12 13 14 15 16 14 15 17 16 17||d. 18 19 20 18 19 20 21 22 23 24 25 21 22 23 24 25 Problem 3 1 1 1 2 2 3 4 5 13 14 2 6 15 16 7 18 7 8 9 3 9 10 10 11 12 13 14 4 11 12 13 14 15 15Step by Step Solution
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