Problem #1: Bonds
Assume Mike Company has issued a bond on January 1, 2010 with a face value of $5,000,000. The
bonds have a stated rate of 5% with a four year term and pay interest annually. The bonds are issued to
yield 8% (the market rate).
8%, 4 periods
PVF$ = 0.7350
PVFA = 3.3121
REQUIRED:
1.
2.
3.
4.
Prepare a bond amortization schedule for this bond issuance.
Prepare the journal entry necessary on the date of issuance.
Prepare the journal entry for the first interest payment on December 31, 2010.
Prepare the journal entry which will be made at maturity of the bonds to pay them off (assume
that the final interest payment has already been made).
Problem #2: Stockholders’ Equity
Cavanaugh Company began year 2010 with the following balances in its stockholders’ equity accounts.
Common Stock -- $10 par, 500,000 shares authorized, 200,000
shares issued and outstanding
Capital in Excess of Par
Retained Earnings
Total Stockholders' Equity
$
$
$
$
2,000,000
1,000,000
5,000,000
8,000,000
REQURIED:
1. Prepare journal entries to account for the following transactions during 2010 and 2011:
Date
Jan 10, 2010
Feb 15, 2010
May 1, 2010
Sept 1, 2010
March 15, 2011
Dec 31, 2011
Transaction Description
Issued 1,000 shares of 8% $100 par value cumulative Preferred Stock at an issue price
of $125.
Declared and paid a 20% stock dividend. The market value of the stock is $18 per
share. (prepare one journal entry assuming this is a small stock divided and another
assuming it is a large stock dividend).
Purchased 30,000 shares of treasury stock at $20 per share.
Sold 10,000 shares of treasury stock at $26 per share.
Sold 10,000 shares of treasury stock at $7 per share
The Board of Directors declared and paid a dividend totaling $50,000.
2. Determine how much of the dividend paid on December 31, 2011 will get paid to preferred
shareholders and how much gets paid to common shareholders.
3. Prepare the Stockholders’ Equity Section for Cavanaugh Company as of December 31, 2011.
Problem #3: Statement of Cash Flows
LaFortune Company
Comparative Balance Sheet
As of the year ending
ASSETS
2011
2010
Change
Current Assets
Cash
$189,600
$68,000
$121,600
$82,000
$102,000
($20,000)
$182,400
$200,000
($17,600)
$454,000
$370,000
Equipment
$258,000
$238,000
$20,000
Accumulated Depreciation
($34,000)
($18,000)
($16,000)
$224,000
$220,000
$678,000
$590,000
Accounts Payable
$20,000
$32,000
($12,000)
Wages Payable
$18,000
$10,000
$8,000
Other payables
$10,000
$10,000
$0
Income Taxes Payable
$2,800
$5,200
($2,400)
Total Current Liabilities
$50,800
$57,200
Notes Payable, Long-term
$58,000
$38,000
$20,000
$498,000
$478,000
$20,000
$71,200
$16,800
$54,400
$569,200
$494,800
$678,000
$590,000
Accounts Receivable, net
Inventory
Total Current Assets
Propery, Plant & Equipment
Total Property, Plant & Equipment
TOTAL ASSETS
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Stockholders' Equity
Contributed Capital
Retained Earnings
Total Stockholders' Equity
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY
LaFortune Company
Income Statement
For the year ending December 31, 2011
Sales
$941,000
Less: Cost of Goods Sold
$628,000
Gross Profit
$313,000
Less: Operating Expenses
Depreciation Expense
$46,000
Wages Expense
$78,200
Other Expenses
$100,000
Operating Income
$88,800
Other Information
Gain on Sale of Equipment
Pre-tax Income
$20,000
$108,800
Less: Income tax expense
$34,600
Net Income
$74,200
Additional Information:
1.
2.
3.
4.
5.
The company issued new common stock for $20,000.
The company signed a Note Payable for $20,000.
The Company declared and paid a $19,800 cash dividend.
The Company purchased $100,000 of equipment for cash.
The Company sold equipment with a cost of $80,000 with a related accumulated depreciation of
$30,000 for $70,000 cash.
REQUIRED:
1. Prepare the Statement of Cash Flows using the indirect method
2. Prepare the Cash flows from Operating Activities using the direct method.
Account Name
Debit
Accounts Payable
Accounts Receivable
Credit
$24,000
$57,000
Accumulated Depreciation
$15,000
Allowance for Doubtful Accounts
$15,000
Bad Debt Expense
$9,000
Building
$255,000
Cash
$120,000
Contributed Capital
Cost of Goods Sold
$225,000
$144,000
Depreciation Expense
$3,000
Interest Expense
$4,500
Inventory
Loss on Sale of Assets
$36,000
$7,500
Notes Payable, due in 5 years
Notes Receivable, due in 75 days
Prepaid Expense
Rent Expense
$165,000
$30,000
$6,000
$75,000
Retained Earnings
$16,500
Sales Revenue
$405,000
Unearned Revenue
$13,500
Utilities Expense
$30,000
Wages Expense
$105,000
Wages Payable
TOTAL
$3,000
$882,000
$882,000
What type of
Account?
Determine:
CA = Current Asset
Total Current Assets
CL = Current Liability
Total Current Liabilities
NCA = Non-Current Asset
Gross Profit
NCL = Non-Current Liability
Operating Income
SE = Stockholders' Equity
Net Income
R = Revenue
Total Assets
OE = Operating Expense
Total Liabilities
NOI= Non-Operating Item