Question 1 - Prepare the journal entries that the lessee should make to record the following transactions.
1. The lessee makes a lease payment of $86,590 to the lessor in an operating lease transaction.
2. Imhoff Company leases a new building from Noble Construction, Inc. The present value of the lease payments is $682,100. The lease qualifies as a capital lease.
Question 2 - Presented below are long-term liability items for Lind Company at December 31, 2014.
Bonds payable, due 2016 $455,000
Lease liability 68,030
Notes payable, due 2019 74,550
Discount on bonds payable 36,400
Prepare the long-term liabilities section of the balance sheet for Lind Company.
Question 3 - Gilliland Airlines is considering two alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are:
1. Issue 115,500 shares of common stock at $30 per share. (Cash dividends have not been paid nor is the payment of any contemplated.)
2. Issue 8%, 10-year bonds at face value for $3,465,000.
It is estimated that the company will earn $836,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 114,700 shares of common stock outstanding prior to the new financing.
Determine the effect on net income and earnings per share for these two methods of financing.
Question 4 - Laudie Company issued $344,000 of 8%, 10-year bonds on January 1, 2014, at face value. Interest is payable semiannually on July 1 and January 1.
Prepare the journal entry to record the issuance of the bonds.
Question 5 - Jernigan Co. receives $264,000 when it issues a $264,000, 12%, mortgage note payable to finance the construction of a building at December 31, 2014. The terms provide for semiannual installment payments of $22,000 on June 30 and December 31.
Prepare the journal entries to record the mortgage loan and the first two installment payments.
Question 6 - Asquith Electric sold $490,000, 14%, 10-year bonds on January 1, 2014. The bonds were dated January 1 and paid interest on January 1 and July 1. The bonds were sold at 101.
Prepare the journal entry to record the issuance of the bonds on January 1, 2014.