Problem 1 -
On January 2, 2016, Myers Company issued $5,000,000 of their 10-year bonds at 102. The bonds have a stated rate of 8% and the semi-annual interest payments are made each June 30 and December 31.
Required: Compute the proceeds from the bond sale and the effective (annual) interest rate.
Problem 2 -
On January 2, 2014, Whitcomb Company issued $6,000,000 of their 10-year bonds with a stated rate of 6% and the semi-annual interest payments are made each June 30 and December 31. Assume that the bonds were sold to yield 8% and that Whitcomb uses the effective interest method of amortizing the bond discount. Pay attention!! Note that I am asking for interest expense and liability balance for the 2015 financial statements!
Required: Compute the following amounts.
- Proceeds from the bond sale
- Amount of each interest payment
- Interest expense recognized for 2015
- Bond liability at December 31, 2015
Problem 3 -
On January 3, 2016, Snark Corporation retired $800,000 of bonds by repurchasing them for $816,000 (at 102). HINT: This is the amount that Snark had to pay to repurchase the bonds and does not have anything to do with the carrying value of the bonds. Assume that the bond interest payment on December 31, 2015 has been made.
The $800,000 bonds were 20-year bonds and were issued on January 2, 2008. The bonds provide annual interest payments at 7% (coupon rate) with an effective rate of 5%, payable every December 31 (beginning December 31, 2008). How much was the gain or loss on the retirement of the bonds? Snark uses the effective interest method of amortizing premiums and discounts. (HINT: The proceeds of the bonds were $999,395.)
Problem 4 -
On January 1, 2015, Wall Corporation reported the following in the stockholders' equity section of their balance sheet:
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Common stock, par $10, authorized 100,000 shares, issued 20,000 shares
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$200,000
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Capital in excess of par value
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$400,000
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Retained earnings
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$400,000
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During 2015, the following selected transactions occurred (assume they occurred in the order given):
1. 5,000 shares of treasury stock were purchased at $12.00 per share.
2. Issued a 10% stock dividend when the market price was $14.00.
3. Declared and paid a cash dividend of $30,000.
4. Net income was $120,000.
Prepare the stockholders' equity section of the balance sheet as of December 31, 2015. Include the number of shares for Common stock, Shares held in treasury, and Total stockholders' equity in place of the ### symbols.
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Dollar Amounts
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Common stock
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Shares:
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21,500
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$215,000
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Paid in capital
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$406,000
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Total contributed capital
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$621,000
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Retained earnings
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$469,000
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Total contributed capital and retained earnings
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$1,090,000
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Less: Shares held in treasury
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Shares:
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5,000
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$60,000
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Total stockholders' equity
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Shares:
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16,500
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$1,030,000
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|
|
|
|
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Problem 5 -
Wainwright Corporation has the following capital stock outstanding:
$10 par value common stock, outstanding 100,000 shares.
8% preferred stock, par $400, 2,500 shares, with 3 years in arrears.
Cash dividends of $400,000 were declared and paid near the end of the current year.
Requirements:
Assume that the preferred stock is cumulative. Calculate:
- Dividends received by the preferred stockholders
- Dividends received by the common stockholders.
Problem 6 -
Lane Company had the following Income Statement for 2014 and Balance sheets as of December 31, 2013 and 2014. Determine the net cash flow from operating activities for 2014 using the indirect method, the cash provided by or used for investing activities, and the cash provided by or used for financing activities.
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Lane Company Income Statement For the year ended December 31, 2015
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|
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Sales
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$242,000
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Cost of goods sold
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122,000
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Gross margin
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120,000
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Operating expenses
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52,500
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Income from operations
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67,500
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Gain on sale of equipment*
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2,000
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Income before taxes
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69,500
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Income tax expense
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20,140
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Net income
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$49,360
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Lane Company Balance sheet
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December 31,2015
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December 31,2014
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Assets
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|
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Cash
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$106,460
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$63,000
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Accounts receivable
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70,000
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66,000
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Merchandise inventory
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70,000
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72,000
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Property and equipment
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312,000
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290,000
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Less: Accumulated depreciation
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(184,000)
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(165,000)
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374,460
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326,000
|
|
|
|
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Accounts payable
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70,000
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52,000
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Wages payable
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2,500
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2,200
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Note payable, long-term
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72,000
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76,000
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Contributed capital
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92,400
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89,400
|
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Retained earnings
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137,560
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106,400
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|
374,460
|
326,000
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Additional useful information:
Lane sold equipment for $8,000. It had an original cost of $30,000 and accumulated depreciation of $24,000. There was a gain of $2,000 recognized on the sale.
There was an acquisition of Property and equipment in the amount of $52,000.
There were dividends of 18,200 declared and paid and common stock was sold for $3,000. Assume that Lane stock is "no-par" and that the account, "contributed capital" is used for all stock issues. No long-term borrowings were made during the year.
- Cash provided by operating activities:
- Cash provided by (or used for) investing activities:
- Cash provided by (or used for) financing activities
Problem 7 -
The following income statement and balance sheet information relate to Adams Industries for the year 2011 (the 2010 balance sheet is the "beginning" balance sheet):
2011 Income Statement:
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Sales Revenue
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$620,000
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Cost of goods sold
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310,000
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Gross profit
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310,000
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Operating expenses (including $20,000 depreciation)
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130,000
|
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Pretax income
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180,000
|
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Income tax expense (rate is 30%)
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48,600
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Net Income
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$131,400
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Balance Sheet:
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2011
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2010
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Accounts receivable
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$125,000
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$120,000
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Inventory
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82,000
|
88,000
|
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Prepaid expenses
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10,000
|
14,000
|
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Accounts payable
|
30,000
|
34,000
|
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Income taxes payable
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20,000
|
10,000
|
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Unearned revenue
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15,000
|
10,000
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Compute:
- Cash collected from customers
- Cash paid to suppliers
Problem 8 -
Below are the comparative balance sheets for 2014 and 2015 as well as the income statement for 2015 for Dynamite Sales Company.
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2015
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2014
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Income statement
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|
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Sales revenue
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$845,000
|
|
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Cost of goods sold
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520,000
|
|
|
Gross profit
|
325,000
|
|
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Operating expenses
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110,000
|
|
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Pretax income
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215,000
|
|
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Income tax
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180,000
|
|
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Net income
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$ 35,000
|
|
|
|
|
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Balance sheet
|
|
|
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Cash
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$8,800
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$5,620
|
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Accounts receivable (net)
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42,000
|
36,000
|
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Merchandise inventory
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25,000
|
18,000
|
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Prepaid-expenses
|
500
|
400
|
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Fixed assets (net)
|
190,000
|
180,000
|
|
$266,300
|
$240,020
|
|
|
|
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Accounts payable
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$17,000
|
$18,000
|
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Income taxes payable
|
1,000
|
1,000
|
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Bonds payable
|
100,000
|
90,000
|
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Common stock
|
100,000
|
100,000
|
|
Retained earnings
|
48,300
|
31,020
|
|
$266,300
|
$240,020
|
|
|
|
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*Assume the following: Interest expense is $7,000. The market price of stock on December 31, 2015 is $28.00. The relevant tax rate is 30%. The average number of shares outstanding is 20,000 shares.
Using this information, calculate each of the following ratios (show as decimals to four places - do not show as percentages):
- Profit margin
- Return on assets
- Return on equity
- Earnings per share
- Price/earnings ratio
- Debt-to-equity ratio
- Financial leverage percentage
- Fixed asset turnover ratio.