Chapter 10 Bonds and Other Liabilities problems

Problem 1

The following items are of financial interest to the investors and creditors of Sunlife corporation

                                                                                                Bonds Payable                                    $1,000,000

                                                                                                Accounts Payable                                    100,000

                                                                                                Salaries Payable                                          20,000

                                                                                                Unfunded pension liability                        800,000

                                                                                                Installment Note Payable                          500,000

                                                                                                Unearned ticket revenue                            100,000

                                                                                                Notes Payable                                              80,000

                                                                                                Interest Payable                                           50,000

Also                            The Notes Payable are due in 3 months

                        $50,000 of the principal payment of the installment loan is due to be paid this year.

Required: Prepare the liabilities section of the Balance Sheet (separate current liabilities and long-term liabilities)

Problem 2

Smith Corporation received approval to issue $1,000,000 of 9%, 20 year Bonds.  The Bonds have interest payment dates of September 30^th and March 31^st.  The Bonds are issued at a price of 100 plus accrued interest on May 31^st, 2017. Prepare the journal entries that will be needed on (1) May 31,2017 to record the issuance of the bonds, (2) September 30^th2017 to record the first payment of interest, and December 31, 2017 to record the adjusting entry necessary related to the bonds.

May 31

Sept 30

Dec 31

The company has the following information for 2018

1. Compute basic and diluted EPS for 2018 (to the nearest tenth of a cent).
2. Compute basic and diluted EPS for 2018 assuming the stock options were granted on March 1, 2018.
3. Compute basic and diluted EPS for 2018 assuming the stock options were granted on March 1, 2018 and the debt was issued on July 1, 2018 (don’t forget to adjust net income).

Prepare an amortization schedule first

DeLong Corporation was organized on January 1, 2019. It is authorized to issue 10,000 shares of 8%, $100 par value preferred stock, and 500,000 shares of no-par common stock with a stated value of $2 per share. The following stock transactions were completed during the first year:

Bentley has the following information for 2018:

1. Compute basic and diluted EPS for 2018 (to the nearest tenth of a cent).
2. Compute basic and diluted EPS for 2018 assuming the stock options were granted on March 1, 2018.
3. Compute basic and diluted EPS for 2018 assuming the stock options were granted on March 1, 2018 and the debt was issued on July 1, 2018 (don’t forget to adjust net income).

Prepare an amortization schedule first

• 12.

  (Equilibrium) Assume the market for corn is depicted as in the table that appears below.

  1. Complete the table below.

  2. What market pressure occurs when quantity demanded exceeds quantity supplied? Explain.

  3. What market pressure occurs when quantity supplied exceeds quantity demanded? Explain.

  4. What is the equilibrium price?

  5. What could change the equilibrium price?

  6. At each price in the first column of the table below, how much is sold?

     Price per Bushel	Quantity Demanded (millions of bushels)	Quantity Supplied (millions of bushels)	Surplus/Shortage	Will Price Rise or Fall?
     $1.80	320	200
     2.00	300	230
     2.20	270	270
     2.40	230	300
     2.60	200	330
     2.80	180	350

1. What criteria do consumers apply when deciding whether or not to consume

a. The consumer would consume only if the price is lower than his highest willingness to pay

b. The consumer would only consume if his surplus is greater than zero

c. The consumer would only consume if the price is higher than his highest willingness to pay

d. Both A&B

2. A demand curves describes

a. the amount of units a consumer will purchase at a given price

b. the amount of units a producer will sell at a given price

c. both the amount of units that a consumer will buy and a producer will produce at a given price

d. the amount of units supplied given a change in prices

3. The price elasticity of demand tells us about

a. The sensitivity of price to quantity

b. The sensitivity of quantity to price

c. The sensitivity of income to price .

d. The sensitivity of income to quantity

4. If the quantity sold of two-liter Coke bottles increases by 10% when price falls by 2%, what is the total change in revenue?

a. Revenue increases by 12%

b. Revenue increases by 8%

c. Revenue falls by 8%

d. Revenue falls by 12%

5. If cars are normal goods, a fall in income will

a. Increase the demand for cars

b. Decrease the demand for cars

c. Have no effect on the demand for cars

d. None of the above

6. Its lunch time, you are hungry and would like to have some pizza. By the law of diminishing marginal value,

a. you would pay more for your first slice of pizza than your second

b. you would pay more for your second slice of pizza than your first

c. you would pay an equal amount of money for both the slices since they are identical

d. none of the above

1. A monopolist has variable costs of VC = q² and faces a demand curve of P = 24 – q, where P is price and q the quantity sold. If the monopolist sets a single price, what is its profit-maximising quantity?

a.2

b.4

c.6

d.8

e. none

2. A monopolist has variable costs of VC = q² and faces a demand curve of P = 24 – q, where P is price and q the quantity sold. If the monopolist sets a single price, what is the resulting loss in the gains from trade?

a.8

b.6

c.12

d.4

e.none

3. A monopolist has variable costs of VC = q² and faces a demand curve of P = 24 – q, where P is price and q the quantity sold. If the monopolist sets a single price what is profit (assume there are no fixed costs)?

a.48

b.64

c.72

d.36

e. none

4. A monopolist has variable costs of VC = q² and faces a demand curve of P = 24 – q, where P is price and q the quantity sold. If the monopolist engages in first-degree price discrimination, the resulting deadweight loss is?

a.6

b.16

c.32

d.64

e.0

5. A monopolist has variable costs of VC = q² and faces a demand curve of P = 24 – q, where P is price and q the quantity sold. (Consider that this demand curve is marginal benefit curve for an individual consumer.) The monopolist engages in first degree price discrimination using a two-part tariff, what is the fixed fee (F) and per-unit fee charged (p)?

a.F = 16, p = 8

b.F = 32, p = 16

c.F = 64, p = 8

d.F = 8, p = 4

e. none

Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the company’s estimator and the work supervisors. The on-site supervisors claim that the estimators do not adequately distinguish between routine work such as removal of asbestos insulation around heating pipes in older homes and nonroutine work such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that nonroutine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: “My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $3.60 to determine the bid price. Since our average cost is only $2.85 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work that shows up. Besides, it is difficult to know what is routine or not routine until you actually start tearing things apart.”

Problem 7-18 Activity-Based Costing and Bidding on Jobs [LO7-2, LO7-3, LO7-4]

Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the company’s estimator and the work supervisors. The on-site supervisors claim that the estimators do not adequately distinguish between routine work, such as removal of asbestos insulation around heating pipes in older homes, and nonroutine work, such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that nonroutine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: “My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $3.60 to determine the bid price. Since our average cost is only $2.775 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work that shows up. Besides, it is difficult to know what is routine or not routine until you actually start tearing things apart.”

To shed light on this controversy, the company initiated an activity-based costing study of all of its costs. Data from the activity-based costing system follow:

Required:

1. Perform the first-stage allocation of costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools.

3. Using the activity rates you have computed, determine the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system.

a. A routine 1,000-square-foot asbestos removal job.

b. A routine 2,000-square-foot asbestos removal job.

c. A nonroutine 2,000-square-foot asbestos removal job.