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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Isanti Inc. finances its capital needs approximately one-third from long-term debt and two-thirds from equity. At December 31, 2018, Isanti had the following liability and equity items:

Chapter 16, Problem 12P, Isanti Inc. finances its capital needs approximately one-third from long-term debt and two-thirds

Transactions during 2019 and other information relating to Isanti’s liabilities and equity accounts were as follows:

  1. 1. The debenture bonds were issued on December 31, 2016, for $5,378,000 to yield 10%. The bonds mature on December 31, 2028. Interest is payable annually on December 31. Isanti uses the interest method to amortize bond premium.
  2. 2. Isanti’s common stock shares are traded on the over-the-counter market. At December 31, 2018, Isanti had 2,000,000 authorized shares of $ 10 par common stock.
  3. 3. On January 15, 2019, Isanti reissued 15,000 of its 25,000 shares of treasury stock for $225,000. The treasury stock had been acquired on February 24, 2018.
  4. 4. On March 2, 2019, Isanti issued a 5% stock dividend on all issued shares. The market price of Isanti’s common stock at the time of issuance was $14 per share.
  5. 5. On November 2, 2019, Isanti borrowed $4,000,000 at 9%, evidenced by an unsecured note payable to United Bank. The note is payable in five equal annual principal installments of $800,000. The first principal and interest payment is due on November 2, 2020.
  6. 6. On December 31, 2019, Isanti owned 10,000 shares of Ryan Corp.’s common stock, which represented a 1% ownership interest. Isanti treats this marketable equity- investment as a long-term investment in available-for-sale securities. The stock was purchased on November 2, 2019, at $20 per share. The market price was $18 per share on December 31, 2019.
  7. 7. Isanti’s net income for 2019 was $2,860,000.

Required:

  1. 1. Prepare the long-term liabilities section of Isanti’s December 31, 2019, balance sheet, including all disclosures applicable to each obligation.
  2. 2. Prepare the shareholders’ equity section of Isanti’s December 31, 2019, balance sheet.
  3. 3. Prepare a schedule showing interest expense for the year ended December 31, 2019.

1.

To determine

Prepare for Company I the long-term liabilities section for the year ended December 31, 2019.

Explanation

Retained earnings:

Retained earnings are that portion of profits which are earned by a company but not distributed to stockholders in the form of dividends. These earnings are retained for various purposes like expansion activities, or funding any future plans.

Prepare for Company I the long-term liabilities section for the year ended December 31, 2019.

ParticularsAmount in $
Long -term liabilities: 
9% unsecured note payable to bank, due in annual principal instalments of $800,000, less current portion (1)3,200,000
11% debenture bonds payable due December 31, 2028, plus unamortized premium of $337,640 (2)5,337,640
Total long-term liabilities8,537,640

(Table 1)

Working notes:

(1) Calculation of 9% of notes payable to bank:

ParticularsAmount in $
9% of notes payable to bank: 
Notes payable, 11/2/19$ 4,000,000
Deduct  instalment due 11/2/20($ 800,000)
Long-term portion,12/31/19$ 3,200,000

...

2.

To determine

Prepare Company I’s shareholder’s equity section for the year ended December 31, 2019, balance sheet.

3.

To determine

Prepare a schedule representing the interest expense for the year ended December 31, 2019.

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