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• On January 1st 2007, Etrade Inc. issued 10‐year bonds with coupon rate 8% and face value $10,000,000. The market interest rate for the company on the issuance date is 10%. p y Interest payable semiannually on June 30th and December 31st. Required: 1. Prepare journal entry for the bond issuance. 2. Prepare journal entries for the two interest payments/interest expense recognition in 2007. payments/interest expense recognition in 2007 3. On February 1st 2008, Etrade retired the bonds early by purchasing them in the open market for $8,700,000 in cash. Prepare the journal entries for the early retirement. h P th j l t i f th l ti t 4. What line items (show description and dollar amounts) regarding this bond will be presented in 2007 and 2008 financial statements: income statements, balance sheets, and statements of cash flows?
753.000 .246.000 x 0.880 Dr. n=20.000 x 12. Bond issuing price = PV ($10.000.880 Dr.984. Discount on B/P 1.120 / Cr. i=5%) = $10.000. 1 B di i i PV ($10 000 000 20 i=5%) + PVA ($400.880 =$8.000.000.000.1.000 + $4.769.3769 + $400. n=20.753. Cash 8. Bonds Payable 10.4622 = $3.
Interest expense Dr Interest expense 437. Discount on B/P 39.579 Cr.694 Dr. Discount on B/P 37.2. Cash 400. Cash 400. Dr.694) x 5% = 439.579 p ( . Interest expense 439.753.579 Cr.880+ 37. Cash Cr. .000 December 31st: Interest expense = (8.753.694 437 694 Cr.880 x 5% interest rate = 8 753 880 x 5% =$437. . June 30th: J 30 Interest expense = bond carrying amount x effective interest rate = 8. ) .694 Cr.000 .
Discount on B/P C Di t B/P 6.000.593 Cr.3.926 6 926 Cr. On December 31st.168. Cash 66.593 1/6 = 73 593 Dr. the Si Et d ti d th b d 2/1/2008 th interest for January has to be paid and recognized first: recognized first: Interest expense = bond carrying amount x 5% x 1/6 = 73. the carrying amount of the bonds is = face value – di b d i f l discount on B/P balance t B/P b l = 10.831.000 –1.153 Since Etrade retired the bond on 2/1/2008. Interest expense 73.847=8.667 .
838.000.921 Bond carrying amount – 8.079 138 079 .079 y g . Cash Cr Cash 8.921 Cr.000 Discount – 1.700.000 8 700 000 Cr. Gain on bonds retirement 138.000 10 000 000 Cr. Dr.3. Continued After the adjusting entries: Face value – 10.161.161.000. Bonds payable Dr Bonds payable 10. . Discount on B/P 1.
000) Cash flows from financing activities: Bond issuance: 8.593) 138.753.4.667) (8.000.168.000) .000 Less discount on B/P (1.700.273) Gain on early retirement of bonds Balance sheet (12/31): In liabilities: Bonds payable: d bl 10. 2007 Income statement: Income statement: Interest expenses (887.847) Statement of cash flows: Statement of cash flows: Cash flows from operating activities: Interest payments: Interest payments: (800.880 Bond retirement: 2008 (73.079 ‐ ‐ (66.
.000 shares issued in 2005 ………………. (5. 1.000 y . .200.2 million shares issued ……………………… 1. 10.000) . 1. Cost at $10 per share …………………………. $100 par value per share.000 shares. 500.000 Additional paid in capital …………………….000.000.000 Common stock $1 par value per share.600. 9. Less: Treasury stock.Final review problem: Equity On December 31st 2008. Rockville Corporation reported the shareholders’ equity accounts shown as follows: Cumulative 8% preferred stock.
declared cash dividend of $100.000 b 31 d l d h di id d f $100 000 to be paid on 1/1/2010. Market price after stock dividend issuance is $12/share. 10 d 2 f 1 t k lit • May 2nd. Show how the company reports the common stock and preferred stock on the balance sheet on 12/31/2009. Assume the company did not declare any dividends in 2008 and 2007.During 2009. Required: Journalize all the above transactions. reissued 200. Rockville had the following transactions: • O J On January 10th . declared 10% stock dividend for common stock holders to be paid on July 1st.000 shares of treasury stock at $12 per share. $12 per share • On June 30th. announced 2‐for‐1 stock split. . declare any dividends in 2008 and 2007. • O D On December 31st. And then paid the p y p dividend on July 1st.
5/share and total number of shares outstanding to 1. . However. have to adjust par value of common stock to $0.4 million and treasury stock to 1 million shares). treasury stock cost should be adjusted to $5/share.4 million (issued shares to 2.Stock split: • For the stock split. Also. no journal entries necessary.
400.400. Reissue 200.000 shares …… Dr.000 shares at cost of $5 per share.000 Cr.000 .000. Treasury Stock Cr.Reissuance • Note that the treasury stock now has 1 million shares at cost of $5 per share. Additional Paid‐in Capital 1. Cash 2. Reissue 200.000 1.
Stock dividend • Common stock outstanding: 1.6 million x 10%) new shares worth $1.92 million (160. After the stock split and reissuance.000 shares.6 million shares Originally issued 1.000 shares. The 10% stock dividend is equivalent as issuing 160.000 (1. minus treasury stock 500. number of shares k h b f h outstanding at the beginning of the year was 700.000 shares. .6 million shares. the number of shares outstanding becomes 1. 700.2 million shares.000 x $12/share) and $1 92 million (160 000 x $12/share) and distributing them to the existing common stock holders.
920. Cr. Common stock 80.920. Additional paid in capital Cr Additional paid in capital 1.000 1 840 000 * par value 0. Dividend D Di id d 1.920.000 = 80.000 • July 1st Dr. Dividend payable 1. .5/share x 160. Dividend payable 1.000 p y .000* Cr.Stock dividend • June 30th Dr.840.000 1 920 000 Cr.000 .
Dividend – Preferred 100. Cash 100. Dividend payable Cr Dividend payable 100.000 Cr.000 100 000 – preferred Dr.000 Cr. Dr. Dividend payable ‐ preferred 100. So the dividend should first be paid toward to the dividends owed.000 .Cash Dividend • The 8% cumulative preferred stock holders p have not been paid dividend in the last two years.
The building is expected to building $600 000 The building is expected to have a useful life of 40 years with no residual value.000.000. Required: • Journalize the purchase transaction. purchased a building with land p p g for total price of $1.000 and the building $600. • H How much depreciation expenses should Mulan hd i i h ld M l report on its income statement for the year of 2010? .Long‐term Assets Basket Purchase g Mulan Capitals Inc.000 on April 1st 2010. The land is appraised at $600.
6 + 0. • Building depreciation expense per year = $12. • Total purchasing cost 1 million Total purchasing cost = 1 million. and building Therefore.500 • The first year is a partial year.500 x 9/12= $9375 depreciation expense should be 12 500 x 9/12= $9375 .2million • Therefore.5million • Building cost = 0 5 million Building cost = 0. Land is 50% of the total value. and building is 50%. therefore the depreciation expense should be 12.6 = 1. Land is 50% of the total value.5 million • Land is not depreciated.Allocation of land and building: Allocation of land and building: • Total appraisal value = 0. • Land cost = 0.
At the end of fiscal year 2009. Allen acquired Brian Company by paying $25 million in cash. Required: Required: • How much is the goodwill recognized by Allen Corp in this transaction? • H How will the goodwill be presented on Allen’s balance ill th d ill b t d All ’ b l sheet. including their dollar d ill i th th t t t i l di th i d ll amount. On March ll lf h 1st 2009. the company conducted impairment tests for all its intangible assets and decided that the goodwill from the transaction has an impairment charge of $3 million. and Brian also had $5 $ million liabilities. income statement. Brian’s assets were worth $15 million measured by fair market value.Intangible Assets Allen Corp operates in several foreign countries. and the statement of cash flows for 2009? Please the write the line items related to the goodwill in the three statements. .
Liabilities from Brian 5 million Cr. Assets from Brian 15 million Dr. Goodwill D G d ill 15 million 15 illi Cr.• G d ill 25 il (15 il 5 il) 15 il Goodwill = 25 mil – (15 mil – 5 mil) = 15 mil Dr. Cash C C h 25 million 25 illi • Balance sheet as of the end of 2009: Goodwill 12 million • Income statement for 2009 co e state e t o 009 Goodwill impairment loss (3 million) .
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