On January 1, 2013, JWS Corporation issued $771,000 of 9% bonds, due in 8 years. The bonds were
issued for $729,219, and pay interest each July 1 and January 1. JWS uses the effective-interest
method.
Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest
payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 10%.
(Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically
indented when amount is entered. Do not indent manually.)
No. Account Titles and Explanation
Debit
Credit
(a)
(b)
(c)
Wasserman Corporation issued 10-year bonds on January 1, 2013. Costs associated with the bond
issuance were $191,800. Wasserman uses the straight-line method to amortize bond issue costs.
Prepare the December 31, 2013, entry to record 2013 bond issue cost amortization. (Round
answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented
when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
Samson Corporation issued a 5-year, $92,800, zero-interest-bearing note to Brown Company on
January 1, 2013, and received cash of $46,138. The implicit interest rate is 15%.
Prepare Samson’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition
of interest. (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are
automatically indented when amount is entered. Do not indent manually.)
No. Account Titles and Explanation
Debit
Credit
(a)
(b)
Foreman Company issued $756,000 of 10%, 20-year bonds on January 1, 2013, at 102. Interest is
payable semiannually on July 1 and January 1. Foreman Company uses the effective-interest method
of amortization for bond premium or discount. Assume an effective yield of 9.7705%.
Prepare the journal entries to record the following. (Round answers to 0 decimal places, e.g.
$38,548. Credit account titles are automatically indented when amount is entered. Do not
indent manually.)
(a) The issuance of the bonds.
(b) The payment of interest and related amortization on July 1, 2013.
(c) The accrual of interest and the related amortization on December 31, 2013.
No. Account Titles and Explanation
Debit
Credit
(a)
(b)
(c)
On January 1, 2012, Osborn Company sold 11% bonds having a maturity value of $843,000 for
$943,973, which provides the bondholders with a 8% yield. The bonds are dated January 1, 2012, and
mature January 1, 2017, with interest payable December 31 of each year. Osborn Company allocates
interest and unamortized discount or premium on the effective-interest basis.
(a) Prepare the journal entry at the date of the bond issuance. (Round answers to 0 decimal
places, e.g. $38,548. Credit account titles are automatically indented when amount is
entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
(b) Prepare a schedule of interest expense and bond amortization for 2012–2014. (Round answers
to 0 decimal places, e.g. $38,548.)
Schedule of Interest Expense and Bond Premium Amortization
Effective-Interest Method
Cash
Interest
Premium
Carrying
Date
Paid
Expense
Amortized Amount of Bonds
1/1/12
$
$
$
$
12/31/12
12/31/13
12/31/14
(c) Prepare the journal entry to record the interest payment and the amortization for 2012. (Round
answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented
when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
(d) Prepare the journal entry to record the interest payment and the amortization for 2014. (Round
answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented
when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
The following amortization and interest schedule reflects the issuance of 11-year bonds by Capulet
Corporation on January 1, 2006, and the subsequent interest payments and charges. The company’s
year-end is December 31, and financial statements are prepared once yearly.
Amortization Schedule
Year
Cash
Interest
1/1/2006
Amount
Unamortized
Carrying
Value
$17,896
$ 132,804
2006
$15,070
$15,936
17,030
133,670
2007
15,070
16,040
16,060
134,640
2008
15,070
16,157
14,973
135,727
2009
15,070
16,287
13,756
136,944
2010
15,070
16,433
12,393
138,307
2011
15,070
16,597
10,866
139,834
2012
15,070
16,780
9,156
141,544
2013
15,070
16,985
7,241
143,459
2014
15,070
17,215
5,096
145,604
2015
15,070
20,166
150,700
(a) Indicate whether the bonds were issued at a premium or a discount.
(b) Indicate whether the amortization schedule is based on the straight-line method or the effectiveinterest method.
(c) Determine the stated interest rate and the effective-interest rate. (Round answers to 0 decimal
places, e.g. $38,548.)
The stated rate
%
The effective rate
%
(d) On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds
on January 1, 2006. (Round answers to 0 decimal places, e.g. $38,548. Credit account titles
are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
(e) On the basis of the schedule above, prepare the journal entry to reflect the bond transactions and
accruals for 2006. (Interest is paid January 1.) (Round answers to 0 decimal places, e.g.
$38,548. Credit account titles are automatically indented when amount is entered. Do not
indent manually.)
Account Titles and Explanation
Debit
Credit
(f) On the basis of the schedule above, prepare the journal entries to reflect the bond transactions
and accruals for 2013. Capulet Corporation does not use reversing entries. (Round answers to 0
decimal places, e.g. $38,548. Credit account titles are automatically indented when amount
is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
Jan. 1, 2013
Dec. 31, 2013
Novak Corporation is preparing its 2012 statement of cash flows, using the indirect method. Presented
below is a list of items that may affect the statement. Using the code below, indicate how each item
will affect Novak’s 2012 statement of cash flows.
Code Letter
A
D
R-I
P-I
R-F
P-F
N
Effect
Added to net income in the operating section
Deducted from net income in the operating section
Cash receipt in investing section
Cash payment in investing section
Cash receipt in financing section
Cash payment in financing section
Noncash investing and financing activity
(a)
Purchase of land and building.
(b)
Decrease in accounts receivable.
(c)
Issuance of stock.
(d)
Depreciation expense.
(e)
Sale of land at book value.
(f)
Sale of land at a gain.
(g)
Payment of dividends.
(h)
Increase in accounts receivable.
(i)
Purchase of available-for-sale investment.
(j)
Increase in accounts payable.
(k)
Decrease in accounts payable.
(l)
Loan from bank by signing note.
(m) Purchase of equipment using a note.
(n)
Increase in inventory.
(o)
Issuance of bonds.
(p)
Retirement of bonds payable.
(q)
Sale of equipment at a loss.
(r)
Purchase of treasury stock.
Bloom Corporation had the following 2012 income statement.
Sales
$209,620
Cost of goods sold
118,970
Gross profit
90,650
Operating expenses (includes depreciation of $24,940)
54,020
Net income
$36,630
The following accounts increased during 2012: Accounts Receivable $11,030; Inventory $10,310;
Accounts Payable $14,820. Prepare the cash flows from operating activities section of Bloom’s 2012
statement of cash flows using the direct method.
Bloom Corporation
Statement of Cash Flows-Direct Method (Partial)
For the Year 2012
$
$
$
Cash received from customers
= ($209,620 – $11,030)
= $198,590
Cash payment to suppliers
= ($118,970 + $10,310 – $14,820) = $114,460
Cash payment for operating expenses = ($54,020 – $24,940)
= $29,080
Loveless Corporation had the following 2012 income statement.
Revenues
$102,933
Expenses
58,460
$44,473
In 2012, Loveless had the following activity in selected accounts.
Accounts Receivable
1/1/12
Revenues
12/31/12
21,440
102,933
Write-offs
Collections
1,010
88,270
35,093
Allowance for Doubtful Accounts
Write-offs
1,010
1/1/12
1,248
Bad debt expense
1,762
12/31/12
2,000
(a) Prepare Loveless’s cash flows from operating activities section of the statement of cash flows
using the direct method.
Loveless Corporation
Statement of Cash Flows-Direct Method (Partial)
For the Year 2012
$
$
(b) Prepare Loveless’s cash flows from operating activities section of the statement of cash flows
using the indirect method. (If an amount reduces the account balance then enter with
negative sign.)
Loveless Corporation
Statement of Cash Flows-Indirect Method (Partial)
For the Year 2012
$
$
(a) Cash paid for expenses
= ($58,460 – $1,762)
= $56,698
(b) Increase in net accounts receivable = ($33,093* – $20,192**) = $12,901
* ($35,093 – $2,000) = $33,093
** ($21,440 – $1,248) = $20,192
Norman Company’s income statement for the year ended December 31, 2012, contained the following
condensed information.
Service revenue
Operating expenses (excluding depreciation)
$831,780
$627,170
Depreciation expense
60,370
Loss on sale of equipment
20,580
Income before income taxes
708,120
123,660
Income tax expense
39,850
Net income
$83,810
Norman’s balance sheet contained the following comparative data at December 31.
2012
Accounts receivable
Accounts payable
2011
$37,420
$58,130
46,480
32,000
Income taxes payable
3,710
8,060
(Accounts payable pertains to operating expenses.)
Prepare the operating activities section of the statement of cash flows using the direct method.
NORMAN COMPANY
Statement of Cash Flows (Partial)
For the Year Ended December 31, 2012
$
$
$
Norman Company’s income statement for the year ended December 31, 2012, contained the following
condensed information.
Service revenue
$842,220
Operating expenses (excluding depreciation)
$620,990
Depreciation expense
56,270
Loss on sale of equipment
23,980
Income before income taxes
701,240
140,980
Income tax expense
41,940
Net income
$99,040
Norman’s balance sheet contained the following comparative data at December 31.
2012
Accounts receivable
Accounts payable
Income taxes payable
2011
$37,810
$59,540
45,130
31,690
4,200
8,960
(Accounts payable pertains to operating expenses.)
Prepare the operating activities section of the statement of cash flows using the indirect method. (If
an amount reduces the account balance then enter with negative sign.)
NORMAN COMPANY
Statement of Cash Flows (Partial)
For the Year Ended December 31, 2012
$
Adjustments to reconcile net income to
$
$
Condensed financial data of Fairchild Company for 2012 and 2011 are presented below.
FAIRCHILD COMPANY
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2012 AND 2011
2012
2011
$1,805
$1,097
Receivables
1,753
1,301
Inventory
1,594
1,919
Plant assets
1,901
1,696
(1,191 )
(1,167 )
1,306
1,475
$7,168
$6,321
Accounts payable
$1,205
$794
Accrued liabilities
205
246
Bonds payable
1,410
1,637
Common stock
1,900
1,698
Retained earnings
2,448
1,946
$7,168
$6,321
Cash
Accumulated depreciation
Long-term investments (held-to-maturity)
FAIRCHILD COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2012
Sales
$6,845
Cost of goods sold
4,708
Gross margin
2,137
Selling and administrative expenses
Income from operations
924
1,213
Other revenues and gains
Gain on sale of investments
Income before tax
96
1,309
Income tax expense
534
Net income
$775
Additional information:
During the year, $63 of common stock was issued in exchange for plant assets. No plant assets were
sold in 2012. Cash dividends were $273.
Prepare a statement of cash flows using the indirect method. (If an amount reduces the account
balance then enter with negative sign.)
FAIRCHILD COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2012
(Indirect Method)
$
Adjustments to reconcile net income to
$
$
Depreciation expense
Sale of held-to-maturity investments
Purchase of plant assets
Issuance of capital stock
=
=
=
=
($1,191 – $1,167)
=
[($1,475 – $1,306) + $96] =
[($1,901 – $1,696) – $63] =
[($1,900 – $1,698) – $63] =
$
$24
$265
($142)
$139