Haramaya University College of Business and Economics Department of Accounting and Finance Assignment two for the course Financial Accounting II 1 The following amortization and interest schedule refl[.]
Haramaya University College of Business and Economics Department of Accounting and Finance Assignment two for the course Financial Accounting II The following amortization and interest schedule reflects the issuance of 10-year bonds by Kiya Corporation on January 1, 2006, and the subsequent interest payments and charges The company’s year-end is December 31, and financial statements are prepared once yearly a Indicate whether the bonds were issued at a premium or a discount and how you can determine this fact from the schedule b Indicate whether the amortization schedule is based on the straight-line method or the effective interest method and how you can determine which method is used c Determine the stated interest rate and the effective-interest rate d On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2006 e On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2006 (Interest is paid January 1.) f On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2013 Kiya Corporation does not use reversing entries Tsehay Co is constructing a new building at a cost of $2,500,000 It received a down payment of $500,000 from local businesses to support the project, and now needs to borrow $2,000,000 to complete the project It therefore decides to issue $2,000,000 of 10.5%, 10year bonds These bonds were issued on January 1, 2011, and pay interest annually on each January The bonds yield 10% Tsehay paid $50,000 in bond issue costs related to the bond sale Instructions a Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2011 b Prepare a bond amortization schedule up to and including January 1, 2015, using the effective interest method c Assume that on July 1, 2014, Tsehay Co retires half of the bonds at a cost of $1,065,000 plus accrued interest Prepare the journal entry to record this retirement In each of the following independent cases the company closes its books on December 31 I Selam Co sells $500,000 of 10% bonds on March 1, 2012 The bonds pay interest on September and March The due date of the bonds is September 1, 2015 The bonds yield 12% Give entries through December 31, 2013 II Biftu Co sells $400,000 of 12% bonds on June 1, 2012 The bonds pay interest on December and June The due date of the bonds is June 1, 2016 The bonds yield 10% On October 1, 2013, Biftu buys back $120,000 worth of bonds for $126,000 (includes accrued interest) Give entries through December 1, 2014 Instructions (Round to the nearest dollar.) For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated Use the effective-interest method for discount and premium amortization (construct amortization tables where applicable) Amortize premium or discount on interest rates and at year-end (Assume that no reversing entries were made.) On March 1, 2013, Abyssinia Company sold its 5-year, $1,000 face value, 9% bonds dated March 1, 2013, at an effective annual interest rate (yield) of 11% Interest is payable semiannually, and the first interest payment date is September 1, 2013 Sealy uses the effective-interest method of amortization Bond issue costs were incurred in preparing and selling the bond issue The bonds can be called by Sealy at 101 at any time on or after March 1, 2014 Instructions (a) (1) How would the selling price of the bond be determined? (2) Specify how all items related to the bonds would be presented in a balance sheet prepared immediately after the bond issue was sold (b) What items related to the bond issue would be included in Sealy’s 2013 income statement, and how would each be determined? (c) Would the amount of bond discount amortization using the effective-interest method of amortization be lower in the second or third year of the life of the bond issue? Why? (d) Assuming that the bonds were called in and retired on March 1, 2014, how should Sealy report the retirement of the bonds on the 2014 income statement? Walia Corporation has the following account balances at December 31, 2012 Common stock, $5 par value …………………………….$ 510,000 Treasury stock ……………………………………………….90,000 Retained earnings …………………………………………2,340,000 Paid-in capital in excess of par—common stock …………1,320,000 Prepare Walia December 31, 2012, stockholders’ equity section During its first year of operations, Shalla Corporation had the following transactions pertaining to its common stock Jan 10 Issued 80,000 shares for cash at $6 per share Mar Issued 5,000 shares to attorneys in payment of a bill for $35,000 for services rendered in helping the company to incorporate July Issued 30,000 shares for cash at $8 per share Sept Issued 60,000 shares for cash at $10 per share Instructions a Prepare the journal entries for these transactions, assuming that the common stock has a par value of $3 per share b Prepare the journal entries for these transactions, assuming that the common stock is nopar with a stated value of $2 per share Twenty-five thousand shares reacquired by Pierce Corporation for $48 per share were exchanged for undeveloped land that has an appraised value of $1,700,000 At the time of the exchange, the common stock was trading at $60 per share on an organized exchange Instructions a Prepare the journal entry to record the acquisition of land assuming that the purchase of the stock was originally recorded using the cost method b Briefly identify the possible alternatives (including those that are totally unacceptable) for quantifying the cost of the land and briefly support your choice Hartman Inc issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $100,000 Instructions a Prepare the journal entry for the issuance when the market price of the common shares is $168 each and market price of the preferred is $210 each (Round to nearest dollar.) b Prepare the journal entry for the issuance when only the market price of the common stock is known and it is $170 per share Zenbaba Corporation purchased for $300,000 a 30% interest in Wanza, Inc This investment enables Zenbaba to exert significant influence over Wanza During the year, Murphy earned net income of $180,000 and paid dividends of $60,000 Prepare journal entries related to this investment for Zenbaba Corporation ... discount on interest rates and at year-end (Assume that no reversing entries were made.) On March 1, 2013, Abyssinia Company sold its 5-year, $1,000 face value, 9% bonds dated March 1, 2013, at... journal entries for these transactions, assuming that the common stock has a par value of $3 per share b Prepare the journal entries for these transactions, assuming that the common stock is nopar... method of amortization be lower in the second or third year of the life of the bond issue? Why? (d) Assuming that the bonds were called in and retired on March 1, 2014, how should Sealy report the