Question
Q10. a. Jenson Co. is considering the following alternative plans for financing the company: Plan 1 Plan 2 Issue 10% bonds (at face) $2,000,000 Issue
Q10.
a. Jenson Co. is considering the following alternative plans for financing the company:
Plan 1 Plan 2
Issue 10% bonds (at face) $2,000,000
Issue $10 common stock $3,000,000 1,000,000
Income tax is estimated at 40% of income.
Determine the earnings per share of common stock under the two alternative financing plans,
assuming income before bond interest and income tax is $1,000,000.
b. Present entries to record the selected transactions described below.
(a) Issued $2,750,000 of 10-year, 8% bonds at 97.
(b) Amortized bond discount for a full year, using the straight-line method.
(c) At the end of the third year, called bonds at 98. The bonds were carried at $2,692,250 at the
time of the redemption.
c. Brubeck Co. issued $10,000,000 of 30-year, 8% bonds on May 1 of the current year, 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 for the current year:
May 1 Issued the bonds for cash at their face amount.
Nov. 1 Paid the interest on the bonds.
Dec. 31 Recorded accrued interest for two months.
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