Chap009

1875 Words Aug 20th, 2015 8 Pages
Chapter 9
Long-Term Liabilities

Compare financing alternatives (LO1)
E9–1 Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $80 million gaming center:
a. Issue $80 million of 5% bonds at face amount.
b. Issue 2 million additional shares of common stock for $40 per share.

Issue Bonds
Issue Stock
Operating income
$12,000,000
$12,000,000
Interest expense (bonds only)

Income before tax

Income tax expense (35%)

Net income
$___________
$___________
Number of shares 2,000,000 4,000,000
Earnings per share (Net income/# of shares)

$

$

Required:
1.
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2. Record the bond issue on January 1, 2012, and the first two semi-annual interest payments on June 30, 2012, and December 31, 2012.

Record bonds issued at a premium (LO4)
E9–7 On January 1, 2012, Splash City issues $500,000 of 7% bonds, due in 10 years, with interest payable semi-annually on June 30 and December 31 each year.
Required:
Assuming the market interest rate on the issue date is 6%, the bonds will issue at $537,194.
1. Complete the first three rows of an amortization table.
2. Record the bond issue on January 1, 2012, and the first two semi-annual interest payments on June 30, 2012, and December 31, 2012.
Record bonds issued at face amount (LO4)
E9–8 On January 1, 2012, White Water issues $200,000 of 7% bonds, due in 10 years, with interest payable semi-annually on June 30 and December 31 each year.
Required:
Assuming the market interest rate on the issue date is 7%, the bonds will issue at $200,000. Record the bond issue on January 1, 2012, and the first two semi-annual interest payments on June 30, 2012, and December 31, 2012.

Record bonds issued at a discount (LO4)
E9–9 On January 1, 2012, White Water issues $200,000 of 7% bonds, due in 10 years, with interest payable semi-annually on June 30 and December 31 each year.
Required:
Assuming the market interest rate on the issue date is 8%, the bonds will issue at $186,410.
1. Complete the first three rows of an amortization table.
2. Record the bond issue on January 1,

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