general business data bank

Ex. 186
On January 1, Focus Corporation issued $600,000, 12%,
5-year bonds at face value. Interest is payable semiannually on July 1 and
January 1.

Instructions
Prepare journal entries to record the
(a) Issuance of the bonds.
(b) Payment of interest on July 1, assuming no
previous accrual of interest.
(c) Accrual of interest on December 31.

Ex. 187
The following section is taken from Blue Corp’s
balance sheet at December 31, 2011.
Current
liabilities
Interest
Payable…………………………………………………… $ 90,000
Long-term
liabilities
Bonds
Payable, 9%, due January 1, 2016 ……………… 2,000,000

Interest is payable semiannually on
January 1 and July 1. The bonds are callable on any interest date.

Ex. 187 (Cont.)

Instructions
(a) Journalize the payment of the
bond interest on January 1, 2012.
(b) Assume that on January 1, 2010, after
paying interest, Blue calls bonds having a face value of $800,000. The call
price is 106. Record the redemption of the bonds.
(c) Prepare the entry to record the
payment of interest on July 1, 2012, assuming no previous accrual of interest
on the remaining bonds.

Ex. 188
Niebuhr Company issued$500,000 of bonds on January 1, 2012.

Instructions
(a)
Prepare
the journal entry to record the retirement of the bonds at maturity, assuming
the bonds were issued at 100.
(b)
Prepare
the journal entry to record the retirement of the bonds before maturity at 97.
Assume the balance in Premium on Bonds Payable is $5,000.
(c)
Prepare
the journal entry to record the conversion of the bonds into 15,000 shares of
$10 par value common stock. Assume the bonds were issued at par.

20,000

Solution 188 (Cont.)

Ex. 189
Casey Company retired $500,000 face value, 9% bonds on
June 30, 2012 at 96. The carrying value of the bonds at the redemption date was
$508,000.

Instructions
Prepare the journal entry to record the redemption of the
bonds.

Ex. 190
Presented
below are three independent situations:
(a) Strike
Corporation purchased $350,000 of its bonds on June 30, 2012, at 102 and
immediately retired them. The carrying value of the bonds on the retirement
date was $339,500. The bonds pay semiannual interest and the interest payment
due on June 30, 2012, has been made and recorded.
(b) Worton,
Inc. purchased $400,000 of its bonds at 97 on June 30, 2012, and immediately
retired them. The carrying value of the bonds on the retirement date was
$393,000. The bonds pay semiannual interest and the interest payment due on
June 30, 2012, has been made and recorded.
(c) Mountain
Company has $80,000, 10%, 12-year convertible bonds outstanding. These bonds
were sold at face value and pay semiannual interest on June 30 and December 31
of each year. The bonds are convertible into 40 shares of Mountain $5 par value
common stock for each $1,000 par value bond. On December 31, 2012, after the
bond interest has been paid, $20,000 par value of bonds were converted. The
market value of Mountain’s common stock was $38 per share on December 31, 2012.

Instructions
For each of the independent situations, prepare
the journal entry to record the retirement or conversion of the bonds.

Ex. 191
Douglas Company
issued a $3,500,000, 10%, 10-year mortgage note payable to finance the
construction of a building at December 31, 2012. The terms provide for
semiannual installment payments of $200,608.

Instructions
Prepare the entry to record:
(a) the mortgage loan on December 31, 2012.
(b) the first installment payment.
Ex. 192
Adams Corporation issues a $4,500,000, 12%,
20-year mortgage note payable on December 31, 2012, to obtain needed financing
for the construction of a building addition. The terms provide for semiannual
installment payments of $309,409 on June 30 and December 31.

Ex. 192 (Cont.)

Instructions
(a) Prepare
the journal entries to record the mortgage loan on December 31, 2012, and the
first installment payment.
(b) Will
the amount of principal reduction in the second installment payment be more or
less than with the first installment payment?

Ex. 193
Lucky Company borrowed $750,000 on January
1, 2012, by issuing $800,000, 8% mortgage note payable. The terms call for
semiannual installment payments of $60,000 on June 30 and December 31.
Instructions
(a) Prepare
the journal entries to record the mortgage loan and the first two installment
payments.
(b) Indicate the amount of mortgage note payable
to be reported as a current liability and as a long-term liability at December
31, 2012.
)]
Long-term: $685,920 [($800,000 – $28,000
– $29,120) – $56,960]

Ex. 194
Presented below are three different aircraft
lease transactions that occurred for Northwest Airways in 2012. All the leases
start on January 1, 2012. In no case does Northwest receive title to the
aircraft during or at the end of the lease period; nor is there a bargain
purchase option.
Lessor
Oxford
Insurance Goin Leasing Flagg Leasing
Type of property 747 Aircraft 727 Aircraft L-1011 Aircraft
Yearly rental $8,508,645 $6,357,660 $2,851,861
Lease term 15 years 15 years 20 years
Estimated economic life 25 years 25 years 25 years
Fair value of
leased
asset $79,200,000 $63,000,000 $32,000,000
Present value of lease
rental
payments $72,000,000 $54,000,000 $28,000,000

Instructions
(a) Which of
the above leases are operating leases and which are capital leases? Explain
your answer.
(b) How should the lease transaction with Oxford Insurance
be recorded in 2012?
(c) How should the lease transaction with Goin Leasing
be recorded in 2012?

Ex. 195
Echo Corporation
entered into the following transactions:
1. On
January 1, 2012 Grant Car Rental leased a car to Echo Corporation for one year.
Terms of the operating lease call for monthly payments of $650.
2. On
January 1, 2012, Echo Corporation entered into an agreement to lease 20
machines from Weiss Corporation. The terms of the lease agreement require an
initial payment of $500,000 and then three annual rental payments of $600,000
beginning on December 31, 2012. The present value of the three rental payments
is $1,492,108. The lease is a capital lease.

Instructions
Prepare the appropriate journal entries
to be made by Echo Corporation in January related to the lease transactions.

Ex. 196
On January 1, 2012,
Malcolm Inc. entered into an agreement to lease equipment from Finley
Corporation. The lease agreement requires five annual rental payments of
$90,000 beginning December 31, 2012. The present value of the rental payments
is $341,172. The lease transfers substantially all the benefits and risks of
ownership toMalcolm.
Instructions
Prepare the entry to record the lease agreement on the
books of Malcolm Inc. on January 1, 2012.

Ex. 197
The adjusted trial balance for Perry Corporation
at the end of 2012 contained the following accounts:
Bonds
payable, 10%…………………………………………………….. $700,000
Interest
payable…………………………………………………………… 20,000
Discount
on bonds payable…………………………………………… 40,000
Lease
liability……………………………………………………………….. 50,000
Mortgage
notes payable, 9%, due 2015………………………….. 90,000
Accounts
payable………………………………………………………… 120,000

aEx. 197 (Cont.)

Instructions
(a) Prepare the long-term liabilities section of
the balance sheet.
(b) Indicate the proper balance sheet
classification for the accounts listed above that do not belong in the
long-term liabilities section.

Ex. 198
Ranger Corporation reports the following amounts
in their 2012 financial statements:

At
December 31, 2012 For the
Year 2012

Total
assets $2,000,000
Total
liabilities 1,130,000
Total
stockholders’ equity ?
Interest
expense $20,000
Income
tax expense 130,000
Net
income 150,000

Instructions
(a) Compute the December 31, 2012, balance in
stockholders’ equity.
(b) Compute the debt to total assets ratio at
December 31, 2012.
(c) Compute
times interest earned for 2012.

aEx. 199
Boxer Corporation is issuing $600,000 of 8%, 5-year bonds when
potential bond investors want a return of 10%. Interest is payable
semiannually. The present value of 1 factors are 4%, .67556 and 5%, .61391. The
present value of an annuity factors are 4%, 8.1109 and 5%, 7.72173.

Instructions
Compute the market price (present
value) of the bonds.

aEx. 200
On January 1, 2012, Plank Corporation
issued $800,000, 9%, 5-year bonds for $769,112. The bonds were sold to yield an
effective-interest rate of 10%. Interest is paid semiannually on June 30 and
December 31. The company uses the effective-interest method of amortization.

Instructions
(a) Prepare a bond discount
amortization schedule which shows the amortization of discount for the first
two interest payment dates. (Round to the nearest dollar.)
(b) Prepare
the journal entries thatPlank Corporation would make on January 1, June 30, and December 31, 2012,
related to the bond issue.

aEx. 201
On June 30, 2012, Upton, Inc. sold $3,000,000
(face value) of bonds. The bonds are dated June 30, 2012, pay interest
semiannually on December 31 and June 30, and will mature on June 30, 2015. The
following schedule was prepared by the accountant for 2012.
Semi-Annual Interest
to Interest Unamortized Bond
Interest Period be Paid Expense Amortization
Amount Carrying Value
$75,000 $2,925,000
1 $120,000 $131,625 $11,625 63,375 1,936,625

Instructions
On the basis of the above information, answer the
following questions. (Round your answer to the nearest dollar or percent.)
1. What
is the stated interest rate for this bond issue?
2. What
is the market interest rate for this bond issue?
3. What
was the selling price of the bonds as a percentage of the face value?
4. Prepare
the journal entry to record the sale of the bond issue on June 30, 2012.
5. Prepare
the journal entry to record the payment of interest and amortization on
December 31, 2012.
aEx. 202
On January 1, 2012, Sunrise Corporation issued
$4,000,000, 9%, 5-year bonds dated January 1, 2012, at 94. The bonds pay
semiannual interest on January 1 and July 1. The company uses the straight-line
method of amortization and has a calendar year end.

Instructions
Prepare all the journal entries that Sunrise
Corporation would make related to this bond issue through January 1, 2013. Be
sure to indicate the date on which the entries would be made.

aEx. 203
Venture Company issued $600,000, 10%, 20-year
bonds on January 1, 2012, at 103. Interest is payable semiannually on July 1
and January 1. Venture uses the straight-line method of amortization and has a
calendar year end.

Instructions
Prepare all
journal entries made in 2012 related to the bond issue.

aEx. 204
Magic Company issued $500,000, 10%, 10-year bonds
on December 31, 2012, for $460,000. Interest is payable semiannually on June 30
and December 31. Magic uses the straight-line method of amortization and has a
calendar year end.

Instructions
Prepare the
appropriate journal entries on
(a) December 31, 2012.
(b) June 30, 2013.