"1. Prepare journal entries for the following four events (use straight-line amortization). 01/01/07 The Def Co. issued $100,000, six year bonds, carrying a coupon rate of ten percent (10%), interest payable annually on December 31 each year. The bonds were issued at an effective yield (market rate) of seven percent (7%). Assume that the net proceeds from the issue of the bond differed from the face value of the bond by $12,000. 12/31/07 Recognize the first interest payment. 12/31/08 Recognize the second interest payment. 01/01/09 Redeem (i.e., buy back) twenty percent (20%) of the bonds outstanding for $18,500. Is it better for a company to issue bonds at a discount or at a premium? Explain your answer.
2. 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 Lo, Ball and Hyde 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. 12/14/08 Make the appropriate entry. 12/31/08 Make any necessary adjusting entry. 01/15/09Make the appropriate entry. 06/12/09Declared 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. 12/15/09Reissued the remaining treasury stock at $10 per share.
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