Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.
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
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.
Particulars
Amount 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 liabilities
8,537,640
(Table 1)
Working notes:
(1) Calculation of 9% of notes payable to bank:
Particulars
Amount 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:
Particulars
Amount 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.
(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(15,000−25,000)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
Explanation of Solution
Particulars
Amount 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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