Exercise 10-4A on page 567
A partial amortization schedule for a10-year note payable issued on January 1, 2016, is shown below.
Acct. Period Principle Jan 1 CashPayment Applied Interest Applied Principle
2016 $200,000 $27, 174 $12,000 $15,174
2017 184,826 27,174 11,090 16,084
2018 168,742 27,174 10,125 17,049
a. Using the financial statement model below, record theappropriate amounts for the following two events:
1.January 1, 2016, issue of note payable
2.December 31, 2016, payment on the note payable.
Exercise 10-5A on page 567
Singer Company has a line of creditwith United Bank. Singer can borrow up to $400,000 at any time toover the course of 2016 calendar year. The following table showsthe prime rate expressed as an annual percentage along with theamounts borrowed and repaid during the first three months of 2016.Singer agreed to pay interest at an annual rate equal to 2% abovethe bankâs prime rate. Funds are borrowed or repaid on the firstday of each month. Interest is payable in cash on the last day ofthe month. The interest rate applied to the outstanding monthlybalance. For example, Singer pays 6.5% (4.5% + 2%) annual intereston $140,000 for the month of February.
Month AmountBorrowed/(Repaid) Prime Rate for the Month
January $80,000 4.0%
February 60,000 4.5
March (20,000) 4.0
Provide all journal entries pertaining to Singerâs line ofcredit for the first three months of 2016.
Exercise 10-25A on page 572
Composite Solutions Company (CSC) hasthe following account balances:
Current Assets $150,000 Current Liabilities $100,000
Noncurrent assets 350,000 Noncurrent Liabilities 250,000
Stockholderâs Equity 150,000
The company wishes to raise $80,000 in cash and is consideringtwo financing options: CSC can sell $80,000 of bonds payable, or itcan issue additional common stock for $80,000. To help the decisionprocess, CSCâs management wants to determine the effects of eachalternative on its current ratio and debt to assets ratio.
Help CSCâs management company by completing the followingchart
Ratio Currently If bonds areissued If stock is issued
Current ratio:
Debt to asset ratio:
Assume that after the funds are invested, EBIT amounts to$60,000. Also assume the company pays $6,000 in dividends or $6,000in interest depending on which source of financing is used. Basedon a 40% tax rate, determine the amount of the increase in retainedearnings that would result under each financing option.
Exercise 10-19A on page 571
On January 1, 2016, the DiamondAssociation issued bonds with a face value of $300,000, a statedrate of interest of 6%, and a 10-year term to maturity Interest ispayable in cash on December 31 of each year. The effective rate ofinterest was 7% at the time the bonds were issued. The bonds soldfor $278,932. Diamond used the effective interest rate method toamortize the bond discount.
Determine the amount of the discount on the day of issue.
Determine the amount of interest expense recognized on December31, 2016.
Determine the carrying value of the bond liability on December31, 2016.
Provide the general journal entry necessary to record theDecember 31, 2016, interest expense.
Exercise 10-20A on page 571
On January 1, 2016, Parker Company issued bonds with a facevalue of $80,000, a stated rate of interest of 8%, and a 5-yearterm to maturity. Interest is payable cash on December 31 of eachyear. The effective rate of interest was 9% at the time the bondswere issued. The bonds sold for $76,888. Parker used the effectiveinterest rate method to amortize the bond discount.
Prepare an amortization table
What items in the table would appear on the 2019 balancesheet?
What items in the table would appear on the 2019 incomestatement?
What items in the table would appear on the 2019 statement ofcash flows?
