Posted: November 16th, 2015

Accounting Worksheet 2

Accounting Worksheet 2

Brief Exercise 15-1
Moby Inc. is considering two alternatives to finance its construction of a new $1.60 million plant.
(a)        Issuance of 160,000 shares of common stock at the market price of $10 per share.
(b)        Issuance of $1,600,000, 8% bonds at face value.

Complete the following table. (Round earnings per share to 2 decimal places, e.g. 0.25.)
Issue Stock        Issue Bond
Income before interest and taxes        $701,100        $701,100
Interest expense from bonds
Income before income taxes
Income tax expense (25%)
Net income        $
$
Outstanding shares
541,100
Earnings per share        $
$
Indicate which alternative is preferable.

Net income is    if stock is used. However, earnings per share is    than earnings per share if bonds are used because of the additional shares of stock that are outstanding.

Brief Exercise 15-2
Meera Corporation issued 3,770, 7%, 5-year, $1,000 bonds dated January 1, 2014, at 100.

Prepare the journal entry to record the sale of these bonds on January 1, 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date    Account Titles and Explanation    Debit    Credit
Jan. 1

Prepare the journal entry to record the first interest payment on July 1, 2014 (interest payable semiannually), assuming no previous accrual of interest. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date    Account Titles and Explanation    Debit    Credit
July 1

Prepare the adjusting journal entry on December 31, 2014, to record interest expense. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date    Account Titles and Explanation    Debit    Credit
Dec. 31

Brief Exercise 15-4
Frankum Company has issued three different bonds during 2014. Interest is payable semiannually on each of these bonds.
1.        On January 1, 2014, 1,110, 7%, 5-year, $1,200 bonds dated January 1, 2014, were issued at face value.
2.        On July 1, $726,200, 8%, 5-year bonds dated July 1, 2014, were issued at 104.
3.        On September 1, $315,400, 6%, 5-year bonds dated September 1, 2014, were issued at 98.

Prepare the journal entries to record each bond transaction at the date of issuance. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date    Account Titles and Explanation    Debit    Credit
Jan. 1

July 1

Sept. 1

Brief Exercise 16-1
Ownbey Corporation purchased debt investments for $47,020 on January 1, 2014. On July 1, 2014, Ownbey received cash interest of $3,800.

Journalize the purchase and the receipt of interest. Assume that no interest has been accrued. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. If no entry is required, select “No entry” for the account titles and enter 0 for the amounts.)
Date    Account Titles and Explanation    Debit    Credit

Brief Exercise 16-2
On August 1, Shaw Company buys 1,000 shares of Estrada common stock for $30,040 cash. On December 1, Shaw sells the stock investments for $36,500 in cash.

Journalize the purchase and sale of the common stock. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. If no entry is required, select “No entry” for the account titles and enter 0 for the amounts.)
Date    Account Titles and Explanation    Debit    Credit

Brief Exercise 16-3
Noler Company owns 25% of Lauer Company. For the current year, Lauer reports net income of $157,100 and declares and pays a $67,000 cash dividend.

Record Noler’s equity in Lauer’s net income and the receipt of dividends from Lauer. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No entry” for the account titles and enter 0 for the amounts.)
Date    Account Titles and Explanation    Debit    Credit
Dec. 31

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