1.
Tano issues bonds with a par value of $96,000 on January 1, 2015. The bonds’ annual contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 12%, and the bonds are sold for $88,923.
|
| 1. |
What is the amount of the discount on these bonds at issuance?
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Explanation:(1) Discount = Par value – Issue price = $96,000 – $88,923 = $7,077
| 2. |
How much total bond interest expense will be recognized over the life of these bonds?
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|
|
| Total bond interest expense over life of bonds: |
| Amount repaid: |
| 6 | payments of | $4,320 | $25,920 |
| Par value at maturity | 96,000 |
| Total repaid | 121,920 |
| Less amount borrowed | (88,923) |
| Total bond interest expense | $32,997 |
|
Explanation:
(2)
Total bond interest expense over the life of the bonds
|
| Amount repaid | | | |
| Six payments of $4,320* | $ | 25,920 | |
| Par value at maturity | | 96,000 | |
| |
|
|
|
| Total repaid | | 121,920 | |
| Less amount borrowed | | (88,923 | ) |
| |
|
|
|
| Total bond interest expense | $ | 32,997 |
*96,000 × 0.09 × ½ = $4,320
| 3. |
Prepare an amortization table using the straight-line method to amortize the discount for these bonds.(Round your intermediate calculations to the nearest dollar amount.)
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|
|
| Semiannual Period-End | Unamortized Discount | Carrying Value |
| 01/01/2015 | $7,077 | $88,923 |
| 06/30/2015 | 5,897 | 90,103 |
| 12/31/2015 | 4,717 | 91,283 |
| 06/30/2016 | 3,537 | 92,463 |
| 12/31/2016 | 2,357 | 93,643 |
| 06/30/2017 | 1,180 | 94,820 |
| 12/31/2017 | $0 | $96,000 |
|
Explanation:
(3) Straight-line amortization table ($7,077/6 = $1,180)
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2.
Quatro Co. issues bonds dated January 1, 2015, with a par value of $700,000. The bonds’ annual contract rate is 13%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 12%, and the bonds are sold for $717,237.
|
| 1. |
What is the amount of the premium on these bonds at issuance?
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(1) Premium = Issue price – Par value = $717,237 – $700,000 = $17,237
| 2. |
How much total bond interest expense will be recognized over the life of these bonds?
|
|
|
| Total bond interest expense over life of bonds: |
| Amount repaid: |
| 6 | payments of | $45,500 | $273,000 |
| Par value at maturity | 700,000 |
| Total repaid | 973,000 |
| Less amount borrowed | (717,237) |
| Total bond interest expense | $255,763 |
|
(2)
Total bond interest expense over the life of the bonds
|
| Amount repaid | | | |
| Six payments of $45,500* | $ | 273,000 | |
| Par value at maturity | | 700,000 | |
| |
|
|
|
| Total repaid | | 973,000 | |
| Less amount borrowed | | (717,237 | ) |
| |
|
|
|
| Total bond interest expense | $ | 255,763 |
*$700,000 × 0.13 × 1/2 = $45,500
| 3. |
Prepare an amortization table for these bonds; use the straight-line method to amortize the premium.(Round your intermediate calculations to the nearest dollar amount.)
|
|
|
| Semiannual Period-End | Unamortized Premium | Carrying Value |
| 01/01/2015 | $17,237 | $717,237 |
| 06/30/2015 | 14,364 | 714,364 |
| 12/31/2015 | 11,491 | 711,491 |
| 06/30/2016 | 8,618 | 708,618 |
| 12/31/2016 | 5,745 | 705,745 |
| 06/30/2017 | 2,873 | 702,873 |
| 12/31/2017 | 0 | 700,000 |
|
| (3) Straight-line amortization table: ($17,237/6 = $2,873) |
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3.
Montclair Company is considering a project that will require a $610,000 loan. It presently has total liabilities of $165,000, and total assets of $675,000.
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| 1. |
Compute Montclair’s (a) present debt-to-equity ratio and (b) the debt-to-equity ratio assuming it borrows $610,000 to fund the project.
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|
|
| Choose Numerator: | / | Choose Denominator: | |
| Total liabilities | / | Total equity | Debt-to-Equity Ratio |
| (a) | $165,000 | / | $510,000 | | 0.32 |
| (b) | $775,000 | / | $510,000 | | 1.52 |
|
(a) Total equity = $675,000 – $165,000 = $510,000
(b) Total liabilities = $165,000 + $610,000 = $775,000
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4.
Rodriguez Corporation issues 14,000 shares of its common stock for $199,400 cash on February 20. Prepare journal entries to record this event under each of the following separate situations.
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| 1. | The stock has a $12 par value. |
| 2. | The stock has neither par nor stated value. |
| 3. | The stock has a $6 stated value. |
| Transaction | General Journal | Debit | Credit |
| 1 | Cash | 199,400 | |
| Common stock, $12 par value | | 168,000 |
| Paid-in capital in excess of par value, common stock | | 31,400 |
| | | |
| 2 | Cash | 199,400 | |
| Common stock, no-par value | | 199,400 |
| | | |
| 3 | Cash | 199,400 | |
| Common stock, $6 stated value | | 84,000 |
| Paid-in capital in excess of stated value, common stock | | 115,400 |
| 1. | Common stock = 14,000 shares × $12 per share = $168,000 |
| 3. | Common stock = 14,000 shares × $6 per share = $84,000 |
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5.
On June 30, 2015, Sharper Corporation’s common stock is priced at $27.50 per share before any stock dividend or split, and the stockholders’ equity section of its balance sheet appears as follows.
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| | | |
Common stock—$8 par value, 75,000 shares authorized,
30,000 shares issued and outstanding | $ | 240,000 |
| Paid-in capital in excess of par value, common stock | | 100,000 |
| Retained earnings | | 340,000 |
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|
|
| Total stockholders’ equity | $ | 680,000 |
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|
| 1. |
Assume that the company declares and immediately distributes a 100% stock dividend. This event is recorded by capitalizing retained earnings equal to the stock’s par value. Answer these questions about stockholders’ equity as it exists after issuing the new shares.
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| a.,b.& c. |
Complete the below table to calculate the retained earnings balance, total stockholders’ equity and number of outstanding shares.
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|
|
| Stock Dividend | Before Stock Dividend | Impact of Stock Dividend | After Stock Dividend |
| Common stock | $240,000 | 240,000 | $480,000 |
| Paid in capital in excess of par value | 100,000 | | 100,000 |
| Total contributed capital | 340,000 | 240,000 | 580,000 |
| Retained Earnings | 340,000 | (240,000) | 100,000 |
| Total Stockholders' Equity | $680,000 | 0 | $680,000 |
|
| Number of common shares outstanding | 30,000 | 30,000 | 60,000 |
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| | |
| Retained earnings | | |
| Before dividend | $ | 340,000 |
| $8 par value of 30,000 dividend shares | | (240,000) |
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|
|
| After dividend | $ | 100,000 |
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|
| Total stockholders’ equity | | |
Common stock—$8 par value, 75,000 shares authorized,
60,000 shares issued and outstanding | $ | 480,000 |
| Paid-in capital in excess of par value | | 100,000 |
| Retained earnings | | 100,000 |
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|
|
| Total stockholders’ equity | $ | 680,000 |
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|
|
|
| |
| Number of outstanding shares | |
| Outstanding shares before the dividend | 30,000 |
| Dividend shares | 30,000 |
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|
| Outstanding shares after the dividend | 60,000 |
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| 2. |
Assume that the company implements a 2-for-1 stock split instead of the stock dividend in part 1. Answer these questions about stockholders’ equity as it exists after issuing the new shares.
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| a.,b.& c. |
Complete the below table to calculate the retained earnings balance, total stockholders’ equity and number of outstanding shares.
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|
|
| Stock Split | Before Stock Split | Impact of Stock Split | After Stock Split |
| Common stock | $240,000 | | $240,000 |
| Paid in capital in excess of par value | 100,000 | | 100,000 |
| Total contributed capital | 340,000 | | 340,000 |
| Retained Earnings | 340,000 | | 340,000 |
| Total Stockholders' Equity | $680,000 | | $680,000 |
|
| Number of common shares outstanding | 30,000 | 30,000 | 60,000 |
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| |
| Retained earnings | |
| Before and after stock split | $ 340,000 |
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| |
|
| | |
| Total stockholders’ equity | | |
Common stock—$4 par value, 150,000 shares
authorized, 60,000 shares issued and outstanding | $ | 240,000 |
| Paid-in capital in excess of par value | | 100,000 |
| Retained earnings | | 340,000 |
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|
|
| Total stockholders’ equity | $ | 680,000 |
|
|
|
|
| |
| Number of outstanding shares | |
| Outstanding shares before the split | 30,000 |
| Additional split shares (2-for-1) | 30,000 |
|
|
| Outstanding shares after the split | 60,000 |
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6.
York’s outstanding stock consists of 26,000 shares of noncumulative 5.00% preferred stock with a $10 par value and also 65,000 shares of common stock with a $1 par value. During its first four years of operation, the corporation declared and paid the following total cash dividends:
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| |
| 2015 | $ | 10,000 |
| 2016 | | 12,000 |
| 2017 | | 80,000 |
| 2018 | | 200,000 |
|
Determine the amount of dividends paid each year to each of the two classes of stockholders: preferred and common. Also compute the total dividends paid to each class for the four years combined. (Round "Dividend Rate (%)" to 1 decimal place and "Dividend per Preferred Share" to 2 decimal places.)
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|
|
| Par Value per Preferred Share | Dividend Rate | Dividend per Preferred Share | Number of Preferred Shares | Preferred Dividend |
| Annual Preferred Dividend: | $10.00 | 5.0% | 0.50 | 26,000 | $13,000 |
| Total Cash Dividend Paid | Paid to Preferred | Paid to Common | Dividends in Arrears at year-end | |
| 2015 | $10,000 | $10,000 | | | |
| 2016 | 12,000 | 12,000 | | |
| 2017 | 80,000 | 13,000 | 67,000 | |
| 2018 | 200,000 | 13,000 | 187,000 | |
| Total: | $302,000 | $48,000 | $254,000 |
|
| Non-Cumulative
Preferred | Common |
| 2015 ($10,000 paid) | | | | |
| Preferred* | $ | 10,000 | | |
| Common—remainder | | | $ | 0 |
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|
|
|
|
| Total for the year | $ | 10,000 | $ | 0 |
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| 2016 ($12,000 paid) | | | | |
| Preferred* | $ | 12,000 | | |
| Common—remainder | | | $ | 0 |
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| Total for the year | $ | 12,000 | $ | 0 |
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| 2017 ($80,000 paid) | | | | |
| Preferred* | $ | 13,000 | | |
| Common—remainder | | | $ | 67,000 |
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|
| Total for the year | $ | 13,000 | | 67,000 |
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| 2018 ($200,000 paid) | | | | |
| Preferred* | $ | 13,000 | | |
| Common—remainder | | | $ | 187,000 |
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| Total for the year | $ | 13,000 | $ | 187,000 |
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| 2015-2018 ($302,000 paid) | | | | |
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| Total for four years | $ | 48,000 | $ | 254,000 |
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* The holders of the noncumulative preferred stock are entitled to no more than $13,000 of dividends in any one year (5.00% × $10 × 26,000 shares).
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7.
Ecker Company reports $1,875,000 of net income for 2015 and declares $262,500 of cash dividends on its preferred stock for 2015. At the end of 2015, the company had 350,000 weighted-average shares of common stock.
|
| 1. |
What amount of net income is available to common stockholders for 2015?
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|
|
| |
| Net income | $1,875,000 |
| To preferred stockholders | (262,500) |
| Net income available to common stockholders | $1,612,500 |
|
| 2. | What is the company’s basic EPS for 2015? |
|
|
| Basic Earnings per Share |
| Choose Numerator: | / | Choose Denominator: | | Basic Earnings per Share |
| Net income available to common stockholders | / | Weighted-average outstanding shares | = | Basic earnings per share |
| $1,612,500 | / | 350,000 | = | $4.61 |
|
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8.
| Company | Earnings
per Share | Market Value
per Share |
| 1 | $ | 10.00 | $ | 160.00 |
| 2 | | 8.00 | | 83.20 |
| 3 | | 6.00 | | 78.60 |
| 4 | | 46.00 | | 345.00 |
Compute the price-earnings ratio for each of these four separate companies.
|
|
| Price-Earnings Ratio |
| Company | Choose Numerator: | Divided by | Choose Denominator: | | Price-Earnings Ratio |
| Market value per share | / | Earnings per share | = | Price-earnings ratio |
| 1 | $160.00 | / | $10.00 | = | 16.0 |
| 2 | 83.20 | / | 8.00 | = | 10.4 |
| 3 | 78.60 | / | 6.00 | = | 13.1 |
| 4 | 345.00 | / | 46.00 | = | 7.5 |
|
| Which stock might an analyst likely investigate as being potentially undervalued by the market? |
Company 4 
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9.
| Company | Annual Cash
Dividend per Share | Market Value
per Share |
| 1 | $ | 19.00 | $ | 296.88 |
| 2 | | 16.00 | | 163.27 |
| 3 | | 17.10 | | 185.87 |
| 4 | | 1.60 | | 123.40 |
Compute the dividend yield for each of these four separate companies.
|
|
| Dividend Yield |
| Company | Choose Numerator: | / | Choose Denominator: | = | Dividend Yield |
| Annual cash dividend per share | / | Market value per share | = | Dividend yield |
| 1 | $19.00 | / | $296.88 | = | 6.4% |
| 2 | $16.00 | / | $163.27 | = | 9.8% |
| 3 | $17.10 | / | $185.87 | = | 9.2% |
| 4 | $1.60 | / | $123.40 | = | 1.3% |
|
Which company’s stock would probably not be classified as an income stock?
Company 4
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10.
The equity section of Cyril Corporation’s balance sheet shows the following:
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| | |
Preferred stock—5% cumulative, $25 par value, $30 call price,
10,000 shares issued and outstanding | $ | 250,000 |
| Common stock—$10 par value, 30,000 shares issued and outstanding | | 300,000 |
| Retained earnings | | 267,500 |
|
|
|
| Total stockholders’ equity | $ | 817,500 |
|
|
|
|
Determine the book value per share of the preferred and common stock under two separate situations.
|
| 1. | No preferred dividends are in arrears. |
|
|
| Book Value Per Preferred Share |
| Choose Numerator: | / | Choose Denominator: | = | Book Value Per Preferred Share |
| Stockholders' equity applicable to preferred shares | / | Number of preferred shares outstanding | = | Book value per preferred share |
| $300,000 | / | 10,000 | = | $30.00 |
| Book Value Per Common Share |
| Choose Numerator: | / | Choose Denominator: | = | Book Value Per Common Share |
| Stockholders' equity applicable to common shares | / | Number of common shares outstanding | = | Book value per common share |
| $517,500 | / | 30,000 | = | $17.25 |
|
1.
| | | | |
| Total stockholders’ equity | | | $ | 817,500 |
| Less equity applicable to preferred shares | | | | |
| Call price ($30 × 10,000) | $ | 300,000 | | |
| Cumulative dividends in arrears (none) | | 0 | | (300,000) |
|
|
|
|
|
| Equity applicable to common shares | | | $ | 517,500 |
| 2. | Three years of preferred dividends are in arrears. |
|
|
| Book Value Per Preferred Share |
| Choose Numerator: | / | Choose Denominator: | = | Book Value Per Preferred Share |
| Stockholders' equity applicable to preferred shares | / | Number of preferred shares outstanding | = | Book value per preferred Share |
| $337,500 | / | 10,000 | = | $33.75 |
| Book Value Per Common Share | |
| Choose Numerator: | / | Choose Denominator: | = | Book Value Per Common Share |
| Stockholders' equity applicable to common shares | / | Number of common shares outstanding | = | Book value per common share |
| $480,000 | / | 30,000 | = | $16.00 |
|
2.
| | | | |
| Total stockholders’ equity | | | $ | 817,500 |
| Less equity applicable to preferred shares | | | | |
| Call price ($30 × 10,000) | $ | 300,000 | | |
| Cumulative dividends in arrears (3 × 5% × $250,000) | | 37,500 | | (337,500) |
|
|
|
|
|
| Equity applicable to common shares | | | $ | 480,000 |
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11.
| 2015 | 2014 | 2013 | 2012 | 2011 |
| Sales | $ 600,627 | $ 397,766 | $ 308,346 | $ 217,145 | $ 158,500 |
| Cost of goods sold | 290,801 | 192,428 | 151,106 | 105,580 | 76,080 |
| Accounts receivable | 29,190 | 23,309 | 21,122 | 12,703 | 10,810 |
|
Compute trend percents for the above accounts, using 2011 as the base year.
|
|
|
| Trend Percent for Net Sales: | |
| Choose Numerator: | / | Choose Denominator: | | | |
| Analysis period net sales | / | Base year net sales | = | Sales | |
| 2015: | $600,627 | / | $158,500 | = | 379 | % |
| 2014: | $397,766 | / | $158,500 | = | 251 | % |
| 2013: | $308,346 | / | $158,500 | = | 195 | % |
| 2012: | $217,145 | / | $158,500 | = | 137 | % |
| |
| Trend Percent for Cost of Goods Sold: | |
| Choose Numerator: | / | Choose Denominator: | | | |
| Analysis period cost of goods sold | / | Base year cost of goods sold | = | Cost of goods sold | |
| 2015: | $290,801 | / | $76,080 | = | 382 | % |
| 2014: | $192,428 | / | $76,080 | = | 253 | % |
| 2013: | $151,106 | / | $76,080 | = | 199 | % |
| 2012: | $105,580 | / | $76,080 | = | 139 | % |
| |
| Trend Percent for Accounts Receivables: | |
| Choose Numerator: | / | Choose Denominator: | | | |
| Analysis period accounts receivable | / | Base year accounts receivable | = | Accounts receivable | |
| 2015: | $29,190 | / | $10,810 | = | 270 | % |
| 2014: | $23,309 | / | $10,810 | = | 216 | % |
| 2013: | $21,122 | / | $10,810 | = | 195 | % |
| 2012: | $12,703 | / | $10,810 | = | 118 | % |
|
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Questions 12-14
[The following information applies to the questions displayed below.]
The stockholders’ equity of TVX Company at the beginning of the day on February 5 follows:
|
| | |
Common stock—$15 par value, 150,000 shares authorized,
63,000 shares issued and outstanding | $ | 945,000 |
| Paid-in capital in excess of par value, common stock | | 525,000 |
| Retained earnings | | 675,000 |
|
|
|
| Total stockholders’ equity | $ | 2,145,000 |
|
|
|
|
On February 5, the directors declare a 18% stock dividend distributable on February 28 to the February 15 stockholders of record. The stock’s market value is $41 per share on February 5 before the stock dividend. The stock’s market value is $35 per share on February 28.
|
12-14
| 1. |
Prepare entries to record both the dividend declaration and its distribution.
|
| Date | General Journal | Debit | Credit |
| Feb 05 | Retained earnings | 464,940 | |
| Common stock dividend distributable | | 170,100 |
| Paid-in capital in excess of par value, Common stock | | 294,840 |
| | | |
| Feb 28 | Common stock dividend distributable | 170,100 | |
| Common stock, $15 par value | | 170,100 |
| Feb. 5 |
| Shares to be issued: 63,000 shares × 18% = 11,340 shares |
| Retained earnings: (11,340 shares × $41) = $464,940 |
| Common stock dividend distributable: 11,340 shares × $15 per share = $170,100 |
| Paid-in capital in excess of par value, common stock: $464,940 – $170,100 = $294,840 |
| 2. |
One stockholder owned 1,000 shares on February 5 before the dividend. Compute the book value per share and total book value of this stockholder’s shares immediately before and after the stock dividend of February 5. (Round your "Book value per share" answers to 2 decimal places. Round "Total book value of shares" to the nearest whole dollar.)
|
|
|
| Before | After |
| Book value per share | $34.05 | $28.85 |
| Total book value of shares | $34,048 | $34,048 |
|
| | Before | | After |
| Total stockholders’ equity | $ | 2,145,000 | | $ | 2,145,000 | |
| Issued and distributable shares | | ÷ | 63,000 | | | ÷ | 74,340 | |
| |
|
|
| |
|
|
| |
| Book value per share | $ | | 34.05 | | $ | | 28.85 | |
| |
|
|
| |
|
|
| |
| Shares owned | | × | 1,000 | | | × | 1,180 | * |
| |
|
|
| |
|
|
| |
| Total book value of shares | $ | | 34,048 | | $ | | 34,048 | |
| |
|
|
| |
|
|
| |
|
| *1,000 shares × 118% = 1,180 shares. |
| 3. |
Compute the total market value of the investor’s shares in part 2 as of February 5 and February 28.
|
|
|
| February 5 | February 28 |
| Total market value of shares | $41,000 | $41,300 |
|
| | February 5 | | February 28 |
| Market value per share | $ | 41 | | $ | 35 |
| Shares owned | | × | 1,000 | | | × | 1,180 |
| |
|
|
| |
|
|
|
| Total market value of shares owned | $ | 41,000 | | $ | 41,300 |
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