Question 2

On January 1, 2018 ABC Corporation issued a five-year $1,000,000, 7%, at $1,050,000. Interest is paid annually on December 31. The market rate of interest is 6%.

Required:

1. Using the effective interest rate method, what is the interest expense at December 31, 2018?

Interest Expense at December 31,2018 = $___________________________

2. What is the carrying value of the bond at December 31, 2018?

Carrying value of bond on December 31, 2018 = $ ________________________

3. What is the carrying value of the bond at January 1, 2023?

Carrying value of the bond at January 1, 2023 =$_________________________

Question 3

Essex Company has a single class of common shares and a single class of cumulative preferred shares. The cumulative preferred shares require the corporation to pay an annual dividend of $4,000 to preferred shareholders. On January 1, 2018, Essexs preferred dividends were one year in arrears, which means that Essex declared neither preferred nor common dividends in 2017. From 2018 to 2019, Essexs Board of Directors determined that they would be able to pay dividends at $10,000 and $14,000, respectively.

Required:

Show how the anticipated dividends will be split between preferred and common shareholders in 2018 and 2019

Dividends to Preferred shareholders in 2018= $_________________

Dividends to Common shareholders in 2018= $_________________

Dividends to Preferred shareholders in 2019= $ __________________

Dividends to Common shareholders in 2019= $_________________