P10-Special

The XYZ Co. sold $3,000,000, 8%, 10 year bonds on January 1, 2018. The bonds were dated January 1, 2018, and pay interest on January 1. The company uses the effective interest method to amortize bond premiums and discounts. Financial statements are prepared annually.

Instructions

a) Prepare the journal entries to record the issuance of the bonds assuming they are sold at:

        (1) 103 (i.e. 103% of face) due to the market interest rate of 7%

        (2) 98   (i.e. 98% of face) due to the market interest rate of 8.5%

b) Prepare amortization tables for both assumed sales for the first three interest payments.

c) Prepare the journal entries to record interest expense for 2018 under both of the bond issuances assumed in part (a).

d) Show the long-term liabilities balance sheet presentation for both of the bond issuances assumed in part (a) at December 31, 2018

Purkerson, Smith, and Traynor have operated a bookstore for a number of years as a partnership. At the beginning of 2018, capital balances were as follows:

Due to a cash shortage, Purkerson invests an additional $8,000 in the business on April 1, 2018.

Each partner is allowed to withdraw $1,000 cash each month.

The partners have used the same method of allocating profits and losses since the business's inception:

• Each partner is given the following compensation allowance for work done in the business: Purkerson, $18,000; Smith, $25,000; and Traynor, $8,000.
• Each partner is credited with interest equal to 10 percent of the average monthly capital balance for the year without regard for normal drawings.
• Any remaining profit or loss is allocated 4:2:4 to Purkerson, Smith, and Traynor, respectively. The net income for 2018 is $23,600. Each partner withdraws the allotted amount each month.

What are the ending capital balances for 2018?

Problem 19-14 EPS; convertible preferred stock; convertible bonds; order of entry [LO19-7, 19-9, 19-10]

Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2018:

Henderson-Niles’s net income for the year ended December 31, 2018, is $960 million. The income tax rate is 40%. Henderson-Niles paid dividends of $3 per share on its preferred stock during 2018.

Required:
Compute basic and diluted earnings per share for the year ended December 31, 2018. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

On January 1, 2017, Alison, Inc., paid $70,800 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $235,000 and liabilities of $95,000. A patent held by Holister having a $8,900 book value was actually worth $25,400. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Holister earned income of $45,700 and declared and paid dividends of $15,000. In 2018, it had income of $53,700 and dividends of $20,000. During 2018, the fair value of Allison’s investment in Holister had risen from $84,080 to $88,960.

a. Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2018?

b. Assuming Alison uses fair-value accounting, what income from the investment in Holister should be reported for 2018?

On January 1, 2017, Alison, Inc., paid $83,600 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $279,500 and liabilities of $118,500. A patent held by Holister having a $6,800 book value was actually worth $42,800. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Holister earned income of $33,500 and declared and paid dividends of $11,000. In 2018, it had income of $68,000 and dividends of $16,000. During 2018, the fair value of Allison’s investment in Holister had risen from $92,900 to $103,200.

a. Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2018?

b. Assuming Alison uses fair-value accounting, what income from the investment in Holister should be reported for 2018?

Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $180 million of 6% bonds, dated January 1, on January 1, 2018. Management intends to include the investment in a short-term, active trading portfolio. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $160 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2018, was $170 million.

Required:
1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate).
4-a. At what amount will Fuzzy Monkey report its investment in the December 31, 2018, balance sheet?
4-b. Prepare any entry necessary to achieve this reporting objective.
5. How would Fuzzy Monkey's 2018 statement of cash flows be affected by this investment?

Big Box Retailer began business during 2017, and decided to use the Dollar-Value LIFO Method to account for Inventory.   On their December 31, 2017 Balance Sheet, Big Box reported an ending inventory balance of $ 2,000,000.

As of the end of 2017, Big Box scaled their price index to 100.   Various Information for Big Box Retailer is as follows:

                                             Inventory @       Price                                  Inventory Purchases

                                          “Current Cost”      Index              Year               During Year

    December 31, 2018        $ 2,400,000            120                2018             $   6,000,000

    December 31, 2019           2,250,000            125                2019                  8,000,000

A. At what amount will Big-Box Retailer report their Ending Inventory on their December 31, 2018 Balance Sheet?

B. What is the “Cost of Goods Sold” reported by Big Box Retailer for their fiscal year ending December 31, 2018?

C. At what amount will Big-Box Retailer report their Ending Inventory on their December 31, 2019 Balance Sheet ?

On January 1, 2017, Alison, Inc., paid $91,300 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $243,500 and liabilities of $87,500. A patent held by Holister having a $6,000 book value was actually worth $60,000. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Holister earned income of $35,200 and declared and paid dividends of $12,000. In 2018, it had income of $54,200 and dividends of $17,000. During 2018, the fair value of Allison’s investment in Holister had risen from $98,780 to $102,860.

a. Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2018?

b. Assuming Alison uses fair-value accounting, what income from the investment in Holister should be reported for 2018?

The December 31, 2018, adjusted trial balance for the Blueboy Cheese Corporation is presented below. Account Title Debits Credits Cash 55,000 Accounts receivable 275,000 Prepaid rent 7,500 Inventory 40,000 Office equipment 500,000 Accumulated depreciation—office equipment 210,000 Accounts payable 50,000 Note payable (due in six months) 30,000 Salaries payable 6,500 Interest payable 1,000 Common stock 400,000 Retained earnings 95,000 Sales revenue 650,000 Cost of goods sold 390,000 Salaries expense 97,500 Rent expense 22,500 Depreciation expense 50,000 Interest expense 2,000 Advertising expense 3,000 Totals 1,442,500 1,442,500 Required: 1-a. Prepare an income statement for the year ended December 31, 2018. 1-b. Prepare a classified balance sheet as of December 31, 2018. 2. Prepare the necessary closing entries at December 31, 2018.

Patrick Corporation issued 5% bonds on January 1, 2018, with a face amount of $1,000,000, the market rate for bonds of similar risk and maturity was 4%. The bonds mature in 20 years and pay interest semi­ annually on June 30 and December 31.

Create an Excel spreadsheet to answer the following requirements and submit a printout of your Excel formulas as well as a handwritten copy of your solutions to the requirements listed below.

Required:

1. Determine the price of the bonds at January 1, 2018.
2. Prepare the journal entry to record the issuance of the bonds on January 1, 2018.
3. Prepare a complete amortization schedule that determines interest at the effective rate each period using the format listed below:

Amortization Schedule

Date      Cash Interest    Effective Interest    Decrease in Balance   Outstanding Balance

4. Prepare the journal entry to record interest on June 30, 2018.
5. Prepare the appropriate journal entry when the bonds mature in 20 years.