1. Beckwith Boots invested $100,000 in 5-year bonds issued by Ace Brick Company. The bonds were purchased at par on January 1, 20X1, and bear interest at a rate of 8% per annum, payable semiannually.
(a) Prepare the journal entry to record the initial investment on January, 20X1.
(b) Prepare the journal entry that Beckwith would record on each interest date.
(c) Prepare the journal entry that Beckwith would record at maturity of the bonds.
(d) How much cash flowed "in" and "out" on this investment, and how does the difference compare to total interest income that was recognized?
2. Devol Computing invested in $100,000 face amount of 6-year bonds issued by Horton Micro Chip Company on January 1, 20X1. The bonds were purchased at 103, and bear interest at a stated rate of 8% per annum, payable semiannually.
(a) Prepare the journal entry to record the initial investment on January, 20X1.
(b) Prepare the journal entry that Devol would record on each interest date.
(c) Prepare the journal entry that Devol would record at maturity of the bonds.
(d) How much cash flowed "in" and "out" on this investment, and how does the difference compare to total interest income that was recognized?
3. Petersen Stores invested in $100,000 face amount of 4-year bonds issued by Erik Food Supply Company on January 1, 20X1. The bonds were purchased at 98, and bear interest at a stated rate of 8% per annum, payable semiannually.
(a) Prepare the journal entry to record the initial investment on January, 20X1.
(b) Prepare the journal entry that Petersen would record on each interest date.
(c) Prepare the journal entry that Petersen would record at maturity of the bonds.
(d) How much cash flowed "in" and "out" on this investment, and how does the difference compare to total interest income that was recognized?
4. Davis Steel Company acquired 30% of the stock of Reginald Metals Company. Davis acquired this investment for purposes of being able to exert significant influence over the strategic plans and operations of Reginald. Following are events pertaining to this investment:
June 1 Purchased 30,000 shares of Reginald for $28 per share.
June 30 The fair value of Reginald's stock was $31 per share, and the company reported June income of $80,000.
July 15 The fair value of Reginald's stock was $30 per share, and the company declared and paid a dividend of $0.50 per share.
July 31 The fair value of Reginald's stock was $29 per share, and the company reported July income of $60,000.
(a) What method should be used to account for this investment?
(b) Prepare journal entries to account for the activity pertaining to the investment in Reginald Metals.
(c) If the investment in Reginald Metals was insufficient to allow Davis to exert significant influence, how would the accounting approach differ?
5. Ace Brick company issued $100,000 of 5-year bonds. The bonds were issued at par on January 1, 20X1, and bear interest at a rate of 8% per annum, payable semiannually.
(a) Prepare the journal entry to record the bond issue on January, 20X1.
(b) Prepare the journal entry that Ace would record on each interest date.
(c) Prepare the journal entry that Ace would record at maturity of the bonds.
(d) How much cash flowed "in" and "out" on this bond issued, and how does the difference compare to total interest expense that was recognized?
6. Horton Micro Chip Company issued $100,000 of face amount of 6-year bonds on January 1, 20X1. The bonds were issed at 103, and bear interest at a stated rate of 8% per annum, payable semiannually. The premium is amortized by the straight-line method.
(a) Prepare the journal entry to record the initial issue on January, 20X1.
(b) Prepare the journal entry that Horton would record on each interest date.
(c) Prepare the journal entry that Horton would record at maturity of the bonds.
(d) How much cash flowed "in" and "out" on this bond issue, and how does the difference compare to total interest expense that was recognized?
7. Erik Food Supply Company issued $100,000 of face amount of 4-year bonds on January 1, 20X1. The bonds were issued at 98, and bear interest at a stated rate of 8% per annum, payable semiannually. The discount is amortized by the straight-line method.
(a) Prepare the journal entry to record the initial issuance on January, 20X1.
(b) Prepare the journal entry that Erik would record on each interest date.
(c) Prepare the journal entry that Erik would record at maturity of the bonds.
(d) How much cash flowed "in" and "out" on this bond issue, and how does the difference compare to total interest expense that was recognized?
8. Clear Water Coffee issued $100,000 of 7% bonds on January 1, 20X1. The bonds were issued at par and pay interest on June 30 and December 31 of each year. By December 31, 20X5, the market rate of interest had increased, and Clear Water was able to reacquire and retire the bonds for $97,500, plus accrued interest.
Prepare the journal entry to record the interest payment and bond retirement on December 31, 20X5.
9. Ozark Corporation reported net income of $100,000 for 20X5. The income statement revealed sales of $1,000,000; gross profit of $520,000; selling and administrative costs of $340,000; interest expense of $20,000; and income taxes of $60,000.
The selling and administrative expenses included $25,000 for depreciation. No equipment was sold during the year. Equipment purchases were made with cash. Prepaid insurance included in the balance sheet related to administrative costs. All accounts payable included in the balance sheet relate to inventory purchases. The change in retained earnings is attributable to net income and dividends. The increase in common stock and additional paid-in capital is due to issuing additional shares for cash.
Using the indirect approach, prepare a statement of cash flows for Ozark for the year ending December 31, 20X5. Comparative balance sheets for Ozark follow.
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OZARK CORPORATION
Balance Sheet
December 31, 20X4 and 20X5
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Assets
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20X5
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20X4
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Cash
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$ 458,700
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$ 471,450
|
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Accounts receivable
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199,250
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171,500
|
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Inventories
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248,600
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278,800
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Prepaid insurance
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13,000
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11,000
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Land
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250,000
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250,000
|
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Building and equipment
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1,500,000
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1,300,000
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Less: Accumulated depreciation
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(205,000)
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(180,000)
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Total assets
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$ 2,464,550
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$ 2,302,750
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Liabilities
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|
|
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Accounts payable
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$ 85,700
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$ 93,400
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Interest payable
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10,500
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15,000
|
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Income taxes payable
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22,000
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8,000
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Stockholders' equity
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|
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Common stock
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710,000
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700,000
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Paid in capital in excess of par
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990,000
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900,000
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Retained earnings
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646,350
|
586,350
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Total liabilities and equity
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$ 2,464,550
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$ 2,302,750
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Attachment:- Homework_Problems_Worksheet.xls