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Below is select information from two, independent companies. Additional information includes: • On January 1, Company A issued a 5-year $1,500,000 bond with at 6% stated rate. Interest is paid semiannually and the bond was sold at 105.5055 to yield a market rate of 4.75%. • On January 1, Company B sold $1,500,000 of common stock and paid dividends of $75,000. A. Prepare an income statement for each company (ignore taxes) B. Explain why the net income amounts are different, paying particular attention to the operational performance and financing performance of each company. (Hint: it may be helpful for you to create an amortization table).

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 13, Problem 2TP
Textbook Problem
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Below is select information from two, independent companies.

Chapter 13, Problem 2TP, Below is select information from two, independent companies. Additional information includes:  On

Additional information includes:

• On January 1, Company A issued a 5-year $1,500,000 bond with at 6% stated rate. Interest is paid semiannually and the bond was sold at 105.5055 to yield a market rate of 4.75%.

• On January 1, Company B sold $1,500,000 of common stock and paid dividends of $75,000.

A. Prepare an income statement for each company (ignore taxes)

B. Explain why the net income amounts are different, paying particular attention to the operational performance and financing performance of each company. (Hint: it may be helpful for you to create an amortization table).

To determine

(a)

Introduction:

Income statement of a company describe the financial results of a company in the form of profit or loss.

To prepare:

Income statements for the companies.

Explanation of Solution

Company ACompany B
Particulars Amount ($) Amount ($) Amount ($) Amount ($)
Revenues
Net sales 2,300,000 2,300,000
Total Revenue(A) 2,300,000 2,300,000
Expenses
Cost of Goods Sold 1,081,000 1,081,000
Total General and Administration expenses ($32,000+$575,000+$175,000)
To determine

(b)

To explain:

The reason of varying income in both companies.

Introduction:

Income statement of a company describe the financial results of a company in the form of profit or loss.

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Chapter 13 Solutions

Principles of Accounting Volume 1
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