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The Jeff Co issued $100,000, six year bonds, carrying a coupon rate of ten percent (10%), interest payable annually on December 31 each year.

The Jeff Co issued $100,000, six year bonds, carrying a coupon rate of ten percent (10%), interest payable annually on December 31 each year.

    1. Prepare journal entries for the following FOUR events (use straight-line amortization).

01/01/07    The Jeff Co issued $100,000, six year bonds, carrying a coupon rate of ten percent (10%), interest payable annually on December 31 each year.  Assume that the net proceeds from the issue of the bond were $112,000.

 

12/31/07    Recognize the first interest payment.

 

12/31/08    Recognize the second interest payment.

 

01/01/09     Redeem (ie, buy back) twenty percent (20%) of the bonds outstanding for $18,500.

 

II.  Is it better for a company to issue bonds at a discount or at a premium?  Explain your answer.

 

III. Use the data from Problem V.  For the most recent year (2008) calculate the following ratios.

    1. Current ratio

 

    1. Inventory turnover

 

    1. Rate of return on total assets

 

    1. Accounts receivable turnover (assume all sales are on account)

 

    1. Debt ratio

IV.  Prepare journal entries for ABC Co’s following events.

 

05/12/08    Received charter authorizing ABC Co to issue 20,000 shares of common stock at a par value of $2 per share.

 

06/03/08    Issued 8,000 shares of stock, receiving $40,000.

 

06/04/08    Paid the law firm of Lobello for their services to help organize the company by sending them two thousand shares of stock.

 

11/15/08    Declared a cash dividend of $2 per share, payable on 01/15/09, to holders of record as of 12/15/08.

 

12/15/08    Make the appropriate entry.

 

12/31/08    Make any necessary adjusting entry.

 

01/15/09    Make the appropriate entry.

 

06/12/09    Declared a ten percent (10%) stock dividend, payable on 7/15/09 (ignore the date of record for this event).  The market value of the stock is $15 per share.

 

07/15/09    Make the appropriate entry.

 

08/15/09    Declared a two-for-one stock split.  The market value of the stock is $15 per share.

 

09/15/09    Declared and paid a cash dividend of $2 per share (pretend this happens all in one day).

 

10/01/09    Purchased 1,000 shares of treasury stock for a total price of $30,000.

 

10/15/09     Declared and paid a cash dividend of $2 per share.

 

11/15/09    Reissued 400 shares of treasury stock at $32 each.

 

12/15/09    Reissued the remaining treasury stock at $10 per share.

 

V. Required

 

Prepare a cash flow statement for 2008 with clear documentation (ie, show your work) for each section of the statement. Use either the direct or the indirect method.

 

Additional information

    1. There were no write-offs of delinquent accounts during the year.

 

    1. A building was sold during the year for $80.

Comparative balance sheets and an income statement for 2008 are presented below for NLeash Company.

 

NLeash Company

 

Comparative Balance Sheets and Income Statement

 

For the Years 2007 and 2008

 

Balance Sheets                             2008            2007

 

Assets

 

Cash                                                200            185

 

Accounts Receivable                        350            290

 

Allowance for bad debts                    (45)            (25)

 

Inventory                                           260            135

 

Land                                                600            500

 

Buildings                                          295            250

 

Accumulated Depreciation- Buildings (65)            (80)

 

Total Assets                                     1,595            1,255

 

Liabilities & Owner’s Equity

 

Liabilities

 

Accounts Payable                              400            305

 

Wages Payable                                    70            67

 

Dividends Payable                               30            47

 

Taxes Payable                                      50            46

 

Long-term bonds payable                  100            100

 

Discount on bonds payable                  (8)            (10)

 

Total liabilities                                      642            555

 

Owner’s Equity

 

Common Stock                                   650            500

 

Retained Earnings                              303            200

 

Total Owner’s Equity                           953            700

 

Total Liabilities & Owner’s Equity   1,595            1,255

 

Income Statement (2008)

 

Revenue                                                   1,200

 

Cost of Goods Sold                                    750

 

Gross Margin                                              450

 

Operating Expenses

 

Wage expense                                      200

 

Depreciation expense                            30

 

Bad debt expense                                 20

 

Bond interest expense                          10

 

Total operating expenses                             260

 

Net Operating Income                                  190

 

Gain on sale of building                               40

 

Net income before tax                                 230

 

Income tax                                                    69

 

Net income after tax                                    161

 

====================================================================

 

ANSWER SHEET

    1. (16 points)

01/01/07

 

12/31/07

 

12/31/08

 

01/01/09

 

II. (9 points)

 

III.  (15 points)

    1. Current ratio

 

    1. Inventory turnover

 

    1. Rate of return on total assets

 

    1. A/R turnover (assume all sales on account)

 

    1. Debt ratio

IV. (30 point)            Account Title            Debit            Credit

 

05/12/08

 

06/03/08

 

06/04/08

 

11/15/08

 

12/15/08

 

12/31/08

 

01/15/09

 

06/12/09

 

07/15/09

 

08/15/09

 

09/15/09

 

10/01/09

 

10/15/09

 

11/15/09

 

12/15/09

 

 

V.  (30 points)


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