Question 1: Selected financial data of Alexander Corporation for the year ended December 31, 2011, is presented below:
Operating income ...................................... $900,000
Interest expense ...................................... (100,000)
Income before income tax .............................. $800,000
Income tax expense .................................... (320,000)
Net income ............................................ $480,000
Preferred stock dividends ............................. (200,000)
Net income available to common stockholders ........... $280,000
Common stock dividends were $120,000. The times-interest-earned ratio is
a. 2.8 to 1.
b. 4.8 to 1.
c. 6.0 to 1.
d. 9.0 to 1.
Question 2: On January 1, 2011, Deily Corporation issued $500,000 of 10 percent, 10-year bonds at 88.5. Interest is payable on December 31. If the market rate of interest was 12 percent at the time the bonds were issued, how much cash was paid for interest in 2011?
a. $44,250
b. $50,000
c. $53,100
d. $60,000
Question 3: On March 1, 2011, Pyne Furniture Co. issued $700,000 of 10 percent bonds to yield 8 percent. Interest is payable semiannually on February 28 and August 31. The bonds mature in ten years. Pyne Furniture Co. is a calendar-year corporation.
(1) Determine the issue price of the bonds. Show your computations.
(2) Prepare an amortization table through the first two interest periods using the effective-interest method.
(3) Prepare the journal entries to record bond-related transactions as of the following dates:
(a) March 1, 2011
(b) August 31, 2011
(c) December 31, 2011
(d) February 28, 2012