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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




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




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





    1. (16 points)









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

































V.  (30 points)

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