Chpt. 15 answers

Chpt. 15 answers - SOLUTIONS TO BRIEF EXERCISES BRIEF...

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SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 15-1 Issue Stock Issue Bond Income before interest and taxes Interest ($2,000,000 X 8%) Income before income taxes Income tax expense (30%) Net income (a) Outstanding shares (b) Earnings per share (a) ÷ (b) $700,000 0 700,000 210,000 $490,000 700,000 $0.70 $700,000 160,000 540,000 162,000 $378,000 500,000 $0.76 Net income is higher if stock is used. However, earnings per share is lower than earnings per share if bonds are used because of the additional shares of stock that are outstanding. BRIEF EXERCISE 15-2 (a) Jan. 1 Cash . ................................................ 3,000,000 Bonds Payable. ........................ 3,000,000 (3,000 X $1,000) (b) July 1 Bond Interest Expense . .................. 120,000 Cash . ........................................ 120,000 ($3,000,000 X 8% X 1/2) (c) Dec. 31 Bond Interest Expense . .................. 120,000 Bond Interest Payable ............. 120,000 ($3,000,000 X 8% X 1/2)
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BRIEF EXERCISE 15-3 (a) Jan. 1 Cash ($2,000,000 X .97) . ................. 1,940,000 Discount on Bonds Payable . ......... 60,000 Bonds Payable. ........................ 2,000,000 (b) Jan. 1 Cash ($2,000,000 X 1.04) . ............... 2,080,000 Bonds Payable. ........................ 2,000,000 Premium on Bonds Payable . .... 80,000 BRIEF EXERCISE 15-4 1. Jan. 1 Cash (1,000 X $1,000) . .................... 1,000,000 Bonds Payable. ........................ 1,000,000 2. July 1 Cash ($800,000 X 1.02) . .................. 816,000 Bonds Payable. ........................ 800,000 Premium on Bonds Payable . .... 16,000 3. Sept. 1 Cash ($200,000 X .98) . .................... 196,000 Discount on Bonds Payable . ......... 4,000 Bonds Payable. ........................ 200,000 BRIEF EXERCISE 15-5 Bonds Payable . ........................................................ 1,000,000 Loss on Bond Redemption . .................................... 70,000 ($1,010,000 – $940,000) Discount on Bonds Payable . ........................... 60,000 Cash ($1,000,000 X 101%) . ............................... 1,010,000
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BRIEF EXERCISE 15-6 Semiannual Interest Period (A) Cash Payment (B) Interest Expense (D) X 5% (C) Reduction of Principal (A) – (B) (D) Principal Balance (D) – (C) Issue Date 1 $48,145 $30,000 $18,145 $600,000 581,855 Dec. 31 Cash . ............................................................. 600,000 Mortgage Notes Payable . .................... 600,000 June 30 Interest Expense . ......................................... 30,000 Mortgage Notes Payable . ............................ 18,145 Cash . ..................................................... 48,145 BRIEF EXERCISE 15-7 1. Rent Expense . ......................................................... 80,000 Cash . ................................................................ 80,000 2. Leased Asset—Building . ....................................... 700,000 Lease Liability . ................................................ 700,000 BRIEF EXERCISE 15-8 Long-term liabilities Bonds payable, due 2010 . ..................................... $500,000
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Chpt. 15 answers - SOLUTIONS TO BRIEF EXERCISES BRIEF...

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