Proxy Inc. issues a $1,300,000, 10%, 10-year mortgage note on December 31, 2017, to obtain financing for a new building. The terms provide for annual installment payments of $211,569. 

Instructions

Prepare the entry to record the mortgage loan on December 31, 2017, and the first installment payment on December 31, 2018.

BE 166

Dayton Inc. is considering two alternatives to finance its construction of a new $5 million plant.

(a)Issuance of 500,000 shares of common stock at the market price of $10 per share.

(b)Issuance of $5 million, 9% bonds at par.

Instructions

Complete the following table.

Issue StockIssue Bonds

Income before interest and taxes$2,000,000$2,000,000

Interest expense from bonds__________________

Income before income taxes$$

Income tax expense (30%)__________________

Net income$________$________

Outstanding shares_________ 700,000

Earnings per share__________________

BE 167

Aire Corporation reports the following selected financial statement information at December 31, 2017:

Total Assets$120,000

Total Liabilities75,000

Net Income20,000

Interest Revenue1,600

Interest Expense800

Income Tax Expense400

Instructions

Calculate the debt to assets and times interest earned ratios.

^aBE 168

On January 1, 2017, Trapp Enterprises issued 9%, 10-year bonds with a face amount of $900,000 at 96. Interest is payable annually on January 1. The bonds were issued for an effective interest rate of 10%.

Instructions

Prepare the entries to record the issuance of the bonds and the first annual interest accrual and amortization assuming that the company uses effective-interest amortization.

^aBE 169

On January 1, 2017, Morgan Enterprises issued 8%, 20-year bonds with a face amount of $5,000,000 at 101. Interest is payable annually on January 1.

Instructions

Prepare the entries to record the issuance of the bonds and the first annual interest accrual and amortization assuming that the company uses straight-line amortization.