Concept explainers
1.
Prepare
1.
Explanation of Solution
Bonds:
Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.
Prepare journal entries to record all transactions occurred during the period 2019, of Corporation D.
Date | Account titles and Explanation | Debit | Credit |
January 1, 2019 | Cash | $820,302 | |
Premium on bonds payable | $20,302 | ||
Bonds payable | $800,000 | ||
(To record issuance of bonds payable) | |||
February 28, 2019 | Interest expense (balancing figure) | $9,792 | |
Discount on bonds payable | $792 | ||
Cash | $9,000 | ||
(To record payment of interest expense) | |||
March 31, 2019 | Interest expense | $30,000 | |
Discount on convertible bonds | $2,500 | ||
Cash | $27,500 | ||
(To record payment of interest expense) | |||
May 1, 2019 | Cash | $5,400 | |
Common stock warrants | $1,920 | ||
Common stock | $2,000 | ||
Additional paid in capital on common stock | $5,320 | ||
(To record detachable warrants of common stock) | |||
June 30, 2019 | Interest expense | $81,250 | |
Cash | $81,250 | ||
(To record payment of interest expense) | |||
June 30, 2019 | Interest expense | $41,015.10 | |
Premium on bonds payable | $2,984.90 | ||
Cash | $44,000 | ||
(To record payment of interest expense) | |||
September 30, 2019 | Interest expense | $30,000 | |
Discount on convertible bonds payable | $2,500 | ||
Cash | $27,500 | ||
(To record payment of interest expense) | |||
September 30, 2019 | Convertible bonds payable | $100,000 | |
Discount on convertible bonds payable | $2,500 | ||
Common stock | $30,000 | ||
Additional paid in capital - common stock | $67,500 | ||
(To record conversion of conversion of convertible bonds) | |||
November 1, 2019 | Interest expense | $6,810.98 | |
Premium on bonds payable | $522.35 | ||
Interest payable | $7,333.33 | ||
(To record payment of interest expense) | |||
November 1, 2019 | Bonds payable | $200,000 | |
Interest payable | $7,333.33 | ||
Premium on bonds payable | $3,806.92 | ||
Loss on bonds redemption | $10,193.08 | ||
Cash | $221,333.33 | ||
(To record retirement of bonds payable) | |||
December 31, 2019 | Interest expense | $81,250 | |
Cash | $81,250 | ||
(To record payment of interest expense) | |||
December 31, 2019 | Interest expense | $12,000 | |
Discount on convertible bonds | $1,000 | ||
Interest payable | $11,000 | ||
(To record payment of interest expense) | |||
December 31, 2019 | Interest expense | $8,160 | |
Discount on convertible bonds | $660 | ||
Interest payable | $7,500 | ||
(To record payment of interest expense) | |||
December 31, 2019 | Interest expense | $6,010.50 | |
Discount on notes payable | $6,010.50 | ||
(To record payment of interest expense) | |||
December 31, 2019 | Interest expense | $30,649.39 | |
Premium on bonds payable | $2,350.61 | ||
Cash | $33,000.00 | ||
(To record payment of interest expense) |
Table (1)
Working notes:
Calculate loss on bonds redemption.
Calculate unamortized premium as on 11/01/2016.
Particulars | Amount |
Unamortized premium on 1/1/2016 ($20,302 × 1÷ 4) | $5,075.50 |
Less: Amortized as on 6/30/2016 ($2,984.90 × 1 ÷ 4) | $746.23 |
Less: Amortized as on 11/1/2016 ($2,984.90 × 1 ÷ 4) | $522.35 |
Unamortized premium as on 11/1/2016 | $3,806.92 |
Table (2)
2.
Prepare long-term debt section of Corporation D ‘s partial balance sheet as on 31st December 2019.
2.
Explanation of Solution
Notes payable:
Notes Payable is a written promise to pay a certain amount on a future date, with certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs
Corporation D | ||
Long-Term Debt | ||
December 31, 2019 | ||
Particulars | Amount | Amount |
12.5% bonds payable (due 31st December 2021) | $1,300,000 | |
Add: 11% convertible bonds (due 31st March 2022) | $400,000 | |
Less: discount on bonds payable | $9,000 | $391,000 |
9% Bonds (detachable warrants) | $100,000 | |
Less: Discount on bonds payable | $2,508 | $97,492 |
11% Bonds payable (due 31st December 2022) | $600,000 | |
Add: Premium on bonds payable | $10,637.22 | $610,637.22 |
4 years non-interest bearing note | $80,000 | |
Less: Discount on notes payable | $13,884.50 | $66,115.50 |
Total long term liabilities | $2,465,244.72 |
Table (3)
Want to see more full solutions like this?
Chapter 14 Solutions
Intermediate Accounting: Reporting And Analysis
- Frost Company has accumulated the following information relevant to its 2019 earningsper share. 1. Net income for 2019: 150,500. 2. Bonds payable: On January 1, 2019, the company had issued 10%, 200,000 bonds at 110. The premium is being amortized in the amount of 1,000 per year. Each 1,000 bond is currently convertible into 22 shares of common stock. To date, no bonds have been converted. 3. Bonds payable: On December 31, 2017, the company had issued 540,000 of 5.8% bonds at par. Each 1,000 bond is currently convertible into 11.6 shares of common stock. To date, no bonds have been converted. 4. Preferred stock: On July 3, 2018, the company had issued 3,800 shares of 7.5%, 100 par, preferred stock at 108 per share. Each share of preferred stock is currently convertible into 2.45 shares of common stock. To date, no preferred stock has been converted and no additional shares of preferred stock have been issued. The current dividends have been paid. 5. Common stock: At the beginning of 2019, 25,000 shares were outstanding. On August 3, 7,000 additional shares were issued. During September, a 20% stock dividend was declared and issued. On November 30, 2,000 shares were reacquired as treasury stock. 6. Compensatory share options: Options to acquire common stock at a price of 33 per share were outstanding during all of 2019. Currently, 4,000 shares may be acquired. To date, no options have been exercised. The unrecognized compens Frost Company has accumulated the following information relevant to its 2019 earnings ns is 5 per share. 7. Miscellaneous: Stock market prices on common stock averaged 41 per share during 2019, and the 2019 ending stock market price was 40 per share. The corporate income tax rate is 30%. Required: 1. Compute the basic earnings per share. Show supporting calculations. 2. Compute the diluted earnings per share. Show supporting calculations. 3. Indicate which earnings per share figure(s) Frost would report on its 2019 income statement.arrow_forwardWaseca Company had 5 convertible securities outstanding during all of 2019. It paid the appropriate interest (and amortized any related premium or discount using the straight line method) and dividends on each security during 2019. Each of the convertible securities is described in the following table: Additional data: Net income for 2019 totaled 119,460. The weighted average number of common shares outstanding during 2019 was 40,000 shares. No share options or warrants arc outstanding. The effective corporate income tax rate is 30%. Required: 1. Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share. 2. Prepare a ranking of the order in which each of the convertible securities should be included in diluted earnings per share. 3. Compute basic earnings per share. 4. Compute diluted earnings per share. 5. Indicate the amount(s) of the earnings per share that Waseca would report on its 2019 income statement.arrow_forwardRefer to the information in RE13-5. Assume that on December 31, 2019, the investment in Smith Corporation bonds has a market value of 12,500. Prepare the year-end journal entry to record the unrealized gain or loss.arrow_forward
- Mills Company had five convertible securities outstanding during all of 2019. It paid the appropriate interest (and amortized any related premium or discount using the straight-line method) and dividends on each security during 2019. Each convertible security is described in the following table. The corporate income tax rate is 30%. Required: 1. Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share. 2. Prepare a ranking of the order in which the securities would be included in the diluted earnings per share computations.arrow_forwardOn July 2, 2018, McGraw Corporation issued 500,000 of convertible bonds. Each 1,000 bond could be converted into 20 shares of the companys 5 par value stock. On July 3, 2020, when the bonds had an unamortized discount of 7,400 and the market value of the McGraw shares was 52 per share, all the bonds were converted into common stock. Required: 1. Prepare the journal entry to record the conversion of the bonds under (a) the book value method and (b) the market value method. 2. Compute the companys debt-to-equity ratio (total liabilities divided by total shareholders equity, as described in Chapter 6) under each alternative. Assume the companys other liabilities are 2 million and shareholders equity before the conversion is 3 million. 3. Assume the company uses IFRS and issued the bonds for 487,500 on July 2, 2018. On this date, it determined that the fair value of each bond was 930 and the fair value of the conversion option was 45 per bond. Prepare the journal entry to record the issuance of the bonds.arrow_forwardRefer to the information in RE13-5. Assume that on June 30, Aggie received interest on the Smith Corporation bonds. Prepare the June 30 journal entries to record the receipt of the interest. On April 30, 2019, Aggie Corporation purchased Smith Corporation 10%, 5-years bonds with a face value of 12,000 at par plus four months of accrued interest. Prepare the April 30 journal entry to record the purchase of these available-for-sale securities.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning