Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
Question
Chapter 16, Problem 12P

1.

To determine

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

1.

Expert Solution
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Explanation of Solution

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

(Table 2)

(2) Calculation of debenture on bonds payable:

ParticularsAmount in $Amount in $
Carrying amount, 12/31/18 5,352,400
Deduct amortization of bond premium:  
                    Interest paid 12/31/19 ($5,000,000 × 11%)550,000 
                    Less: effective interest ($5,352,400 × 10%)(535,240)(14,760)
Carrying amount, 12/31/19 5,337,640

(Table 3)

2.

To determine

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

2.

Expert Solution
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Explanation of Solution

Company I
Shareholder's equity section
For the  year ended December 31,2019
ParticularsAmount in $Amount in $
Contributed Capital:  
Common stock, $10 par; 2,000,000 shares authorized; 840,000 shares issued; 829,500 shares outstanding(3)  8,400,000
Additional paid-in capital: (4)  2,485,000
Retained earnings (5)  4,765,000
Accumulated other comprehensive income (loss):  

         Unrealized decrease in value of marketable equity    

          Securities (6) 

 (20,000)
Total contributed capital, retained earnings, and accumulated other comprehensive loss 15,630,000
Less: Treasury stock, at cost, 10,500 shares (7)  (130,000)
Total Shareholders’ Equity 15,500,000

 (Table 4)

Working notes:

(3) Calculate the amount of common stock issued:

ParticularsDateSharesAmount
BalanceDecember 31,2018(800,000×$10)5,150,000
Add: 5% stock dividend issued (800,000×5%)March 3, 2019(40,000×$10S)(150,000)
BalanceDecember 31,2019(840,000×$10)8,400,000

(Table 5)

(4) Calculate the amount of additional paid-in capital on common stock:

ParticularsAmount in $
Balance, December 31, 20183,500,000
Deduct: Treasurystockreissued1/16/2019 ($225,000$195,000($325,000×60%))(30,000)
Stock dividend  issued on March 3, 2019 (40,000×$4[$14$10])160,000
Balance, December 31, 20192,485,000

(Table 6)

(5) Calculate the amount of retained earnings:

ParticularsAmount in $
Balance, December 31, 20182,465,000
Deduct : Stock dividend issued,3/2/2019(40,000×$14)(560,000)
Net income for 20192,860,000
Balance, December 31, 20194,765,000

(Table 7)

(6) Calculate the amount of unrealised decrease in the value of available-for-sale of securities:

Unrealised decrease in the value of available-for-sale of securities}=(Shares owned by Company I in Company R)×(Purchase price Market price)=10,000Shares ×($20$18)=$20,000

(7) Calculate the amount of treasury stock at cost:

Treasury stock at cost = Treasury stock that is unissued Total number of  treasury stock×(Treasury stock at cost during December31,2018)=10,000(15,00025,000)25,000×$325,000=$130,000

3.

To determine

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

3.

Expert Solution
Check Mark

Explanation of Solution

ParticularsAmount in $
Interest expense: 
Note payable to bank (8)60,000
Debenture bonds payable (9)535,240
Total interest expense    595,240

(Table 8)

Working notes:

(8) Calculate the amount of interest expense on the notes payable on bank:

Interest expense on the notes payable on bank} =Amount borrowed ×Interest ×Time period=$4,000,000×9%×2(November to December )12=$60,000

(9) Calculate the amount of interest expense on debentures bond payable:

Interest expense on debenture bond payable} =(Interest paid for the year ended December 31, 2019)(Amortization on bond premium for the year)=$550,000$14,760=$535,240

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Chapter 16 Solutions

Intermediate Accounting: Reporting And Analysis

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