Question

Using Word, please complete the 2 requirements below:

In January (its first year of existence) of 2017 ABC Corp issued 100,000 shares of 1.00 par stock for $1,750,000. ABC issued 10 year $200,000 bonds at 95 with a stated rate of 9%; and 20 year $400,000 at 105 with a stated rate of 9%. Amortized using the straight-line method. Both pay interest semi-annually.   ABC lastly issued 5% 5-year convertible debt for $105,000, par was 100,000. Interest paid annual on 1/1. Amortizable using SL method. The debt is convertible into 5,000 shares of stock.

On July 1, 2017, getting ready for internet launch of new product - ABC Company issued 10 year $500,000 10% bonds at 98. The market rate of interest is 10.5%. The interest is paid annually on 12/31. ABC uses the effective interest rate method for amortization. Note that the 10% stated rate is an annual rate.

On 8/1 ABC issued 10,000 shares of $10 par value preferred stock for $12/share.

During the year, the sales of widgets skyrocketed. ABC had $3,500,000 in credit sales for inventory   The inventory, which cost $1,500,000 (all purchased with credit) was all sold. No inventory remains.   We will pay the supplier in Jan 2018.   

Due to unbelievable sales the company determined to buy back bonds. On September first they purchased all of the outstanding $200,000 debt for $195,000 cash.

ABC had the following cash transactions: Paid salaries of $100,000, rent of $30,000. Paid for insurance used during the year of $20,000. Had miscellaneous operating expenses of $5,000.   On 12/31 it bought machinery for $10,000 in cash. On 12/31 it bought 1,000 of its common shares back at a price of $10/share.

On 12/15 ABC declared $10,000 cash dividends. The actual payment will not be made until next year.

On 12/31 all of the convertible debt is converted into common stock.

All Journal Entries (including adjusting and closing entries)

Prepare Income Statement in good form and complete

Prepare Balance Sheet in good form and complete

Answer 1

Date	Particulars	Debit ($)	Credit ($)
January 2017	Bank A/c. Debit	1,750,000
	Equity Capital		100,000
	Share Premium Account		1,650,000
	(Issue of equity shares at premium)
January 1	Bank Account Dr	190.000
	Discount on issue of Bonds Dr	10,000
	To 9% Bonds		200,000
	(Issue of bonds at discount)
January 1	Bank Account Dr	420,000
	To 9% Bonds		400,000
	To Premium on Issue of Bonds		20,000
	(Issue of bonds at premium)
January 1	Interest Expense Debit	5,000
	To Interest Payable		5,000
	(Interest payable on bonds issued previously)
January 1	Interest Payable Debit	5,000
	To Bank		5,000
	(Payment of interest on bonds issued previously)
June 30	Interest Expense Debit	54,000
	To Interest Payable		54,000
	(Interest payable on bonds issued during the year)
June 30	Interest Payable Debit	54,000
	To Bank		54,000
	(Payment of interest on bonds issued during the year)
July 1, 2017	Bank Debit	490,000
	Discount on issue of Debentures Debit	10,000
	To 10% Bonds		500,000
	(Issue of bonds at discount)
August 1, 2017	Bank Debit	120,000
	To Preferred Stock		100,000
	To Premium on issue of preferred Stock		20,000
	(Issue of preferred stock at premium)
	Accounts Receivable Debit	3,500,000
	To Sales		3,500,000
	(Sales during the year)
	Purchases Debit	1,500,000
	To Accounts Payable		1,500,000
	(Purchases during the year)
September 1, 2017	Bonds Debit	200,000
	To Bank		195,000
	To Discount on Redemption of Bonds		5,000
	(Redemption of bonds at discount)
	Miscellaneous Operating Expenses	5,000
	To Expenses Payable		5,000
	(Being expenses incurred)
	Salaries Debit	100,000
	Rent Debit	30,000
	Insurance Debit	20,000
	To Bank		150,000
	(Expenses paid)
December 31, 2017	Machinery Debit	10,000
	To Bank		10,000
	(Purchase of machinery)
December 31, 2017	Equity Shares Debit	10,000
	To Bank		10,000
	(Being purchase of shares)
December 15,2017	Dividend Debit	10,000
	To Dividend Payable		10,000
	(Dividend declared)
September 1, 2017	Interest	3,000
	To Interest payable		3,000
	(Interest payable on bonds redeemed during the year)
September 1,2017	Interest payable Debit	3,000
	To Bank		3,000
	(Interest paid on bonds redeemed)
December 31, 2017	Interest Debit	36,000
	To Interest payable		36,000
	(Being interest payable on bonds issued)
December 31, 2017	Interest payable Debit	36,000
	To Bank		36,000
	(Being interest paid)
December 31, 2017	Convertible Debt Debit	100,000
	To Common Stock		100,000
	(Conversion of debt into equity)