Assignment
Exercise 1: Recognizing accrued interest expense
Harveys Corporation borrowed $60,000 from the bank on November 1, 2014. The note had a 6 percent annual rate of interest and matured on April 30, 2015. Interest and principal were paid in cash on the maturity date.
Required
a. What amount of interest expense was paid in cash in 2014?
b. What amount of interest expense was reported on the 2014 income statement?
c. What amount of total liabilities was reported on the December 31, 2014, balance sheet?
d. What total amount of cash was paid to the bank on April 30, 2015, for principal and interest?
e. What amount of interest expense was reported on the 2015 income statement?
Exercise 2: Effects of recognizing accrued interest on financial statements R.T. Jackson started Jackson Company on January 1, 2014. The company experienced the following events during its first year of operation:
1. Earned $3,000 of cash revenue for performing services.
2. Borrowed $4,800 cash from the bank.
3. Adjusted the accounting records to recognize accrued interest expense on the bank note. The note, issued on August 1, 2014, had a one-year term and a 6 percent annual interest rate.
Required
a. What is the amount of interest expense in 2014?
b. What amount of cash was paid for interest in 2014?
c. Use a horizontal statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. Indicate whether the event increases (I), decreases (D), or does not affect (NA) each element of the financial statements. In the Cash Flows column, designate the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). The first transaction has been recorded as an example.
Exercise 3: Determining cash receipts from bond issues
Required
Compute the cash proceeds from bond issues under the following terms. For each case, indicate whether the bonds sold at a premium or discount:
a. Few, Inc., issued $400,000 of 8-year, 8 percent bonds at 101.
b. Files Co. issued $250,000 of 4-year, 6 percent bonds at 98.
c. Fry Co. issued $300,000 of 10-year, 7 percent bonds at 1021/4.
d. Ford, Inc., issued $200,000 of 5-year, 6 percent bonds at 971/2.
Exercise 4: Determining the amount of bond premiums and discounts
Required
For each of the following situations, calculate the amount of bond discount or premium, if any:
a. Wolfe Co. issued $120,000 of 6 percent bonds at 101.
b. Riley, Inc., issued $80,000 of 10-year, 8 percent bonds at 98.
c. Rais, Inc., issued $200,000 of 15-year, 9 percent bonds at 1021/4.
d. Beaux Co. issued $400,000 of 20-year, 8 percent bonds at 99%.
Exercise 5: Identifying bond premiums and discounts
Required
In each of the following situations, state whether the bonds will sell at a premium or discount:
a. Addy issued $400,000 of bonds with a stated interest rate of 7 percent. At the time of issue, the market rate of interest for similar investments was 6 percent.
b. Rigsby issued $200,000 of bonds with a stated interest rate of 6 percent. At the time of issue, the market rate of interest for similar investments was 8 percent.
c. Sanders Inc., issued callable bonds with a stated interest rate of 6 percent. The bonds were callable at 102. At the date of issue, the market rate of interest was 7 percent for similar investments.
Exercise 6: Effect of accounting events on the financial statements of a corporation
Bozeman Corporation was started with the issue of 10,000 shares of $10 par common stock for cash on January 1, 2014. The stock was issued at a market price of $16 per share. During 2014, the company earned $71,000 in cash revenues and paid $46,500 for cash expenses. Also a $5,000 cash dividend was paid to the stockholders.
Required
Prepare the income statement, statement of changes in stockholders' equity, balance sheet, and statement of cash flows for Bozeman Corporation's 2014 fiscal year.
Exercise 7: Effect of issuing common stock on the balance sheet Newly formed Electronics Services Corporation has 100,000 shares of $10 par common stock authorized. On March 1, 2014, Electronics Services issued 20,000 shares of the stock for $12 per share. On May 2 the company issued an additional 30,000 shares for $15 per share. Electronics Services was not affected by other events during 2014.
Required
a. Record the transactions in a horizontal statements model like the following one. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA).
Use NA to indicate that an element was not affected by the event.
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Assets = Liab. + Equity
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Rev. - Exp. = Net Inc.
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Cash Flow
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Cash = + Com. Stk. + Paid-in Excess
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b. Determine the amount Electronics Services would report for common stock on the December 31, 2014, balance sheet.
c. Determine the amount Electronics Services would report for paid-in capital in excess of par.
d. What is the total amount of capital contributed by the owners?
e. What amount of total assets would Electronics Services report on the December 31, 2014, balance sheet?
Exercise 8: Recording and reporting common and preferred stock transactions Goldman Inc. was organized on June 1, 2014. It was authorized to issue 500,000 shares of $10 par common stock and 100,000 shares of 4 percent cumulative class A preferred stock. The class A stock had a stated value of $50 per share. The following stock transactions pertain to Goldman Inc.:
1. Issued 40,000 shares of common stock for $16 per share.
2. Issued 20,000 shares of the class A preferred stock for $52 per share.
3. Issued 60.000 shares of common stock for $20 ner share.
Exercise 9: Accounts receivable turnover, inventory turnover, and net margin Selected data from Komar Company follow.
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Balance Sheet
As of December 31
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2014
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2013
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Accounts receivable
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$500,000
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$450,000
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Allowance for doubtful accounts
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(20,000)
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(16,000)
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Net accounts receivable
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$480,000
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$434,000
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Inventories, lower of cost or market
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$600,000
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$525,000
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Income Statement for the Years Ended December 31
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2014
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2013
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Net credit sales
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$2,000,000
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$1,760,000
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Net cash sales
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400,000
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320,000
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Net sales
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2,400,000
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2,080,000
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Cost of goods sold
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1,600,000
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1,440,000
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Selling, general, and administrative expenses
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240,000
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216,000
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Other expenses
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40,000
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24,000
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Total operating expenses
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$1,880,000
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$1,680,000
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Required
Compute the following and round computations to two decimal points.
a. The accounts receivable turnover for 2014.
b. The inventory turnover for 2014.
c. The net margin for 2013.
Exercise 10: Ratio analysis
During 2014, Desny Corporation reported after-tax net income of $3,890,000. During the year, the number of shares of stock outstanding remained constant at 10,000 of $100 par, 9 percent preferred stock and 400,000 shares of common stock. The company's total stockholders' equity is $20,000,000 at December 31, 2014. Desny Corporation's common stock was selling at $52 per share at the end of its fiscal year. All dividends for the year have been paid, including $4.80 per share to common stockholders.
Required
Compute the following by rounding to two decimal points.
a. Earnings per share
b. Book value per share of common stock
c. Price-earnings ratio
d. Dividend yield.