Reference no: EM132597369

Questions -

Q1- Frey Co. is considering the following alternative financing plans:

Plan 1 Plan 2

Issue 10% bonds (at face value) $1,040,000 $520,000

Issue preferred $1 stock, $10 par - 860,000

Issue common stock, $5 par 1,040,000 700,000

Income tax is estimated at 40% of income.

Determine the earnings per share on common stock, assuming that income before bond interest and income tax is $312,000.

Q2- On January 1, the first day of the fiscal year, a company issues a $300,000, 4%, 10-year bond that pays semiannual interest of $6,000 ($300,000 × 4% × ½ year), receiving cash of $300,000.

a- Journalize the entry to record the issuance of the bonds.

b- Journalize the entry to record the first interest payment on June 30.

c- Journalize the entry to record the payment of the principal on the maturity date.

Q3- On the first day of the fiscal year, a company issues a $2,800,000, 8%, 6-year bond that pays semiannual interest of $112,000 ($2,800,000 × 8% × ½), receiving cash of $2,551,829.

Journalize the bond issuance.

Q4- On the first day of the fiscal year, a company issues a $3,100,000, 12%, 4-year bond that pays semiannual interest of $186,000 ($3,100,000 × 12% × ½), receiving cash of $2,827,636.

Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar.

Q5- On the first day of the fiscal year, a company issues a $3,100,000, 9%, 9-year bond that pays semiannual interest of $139,500 ($3,100,000 × 9% × ½), receiving cash of $3,296,220.

Journalize the bond issuance.

Q6- On the first day of the fiscal year, a company issues a $3,000,000, 6%, 6-year bond that pays semiannual interest of $90,000 ($3,000,000 × 6% × ½), receiving cash of $3,317,259.

Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar.

Q7- A $860,000 bond issue on which there is an unamortized premium of $83,000 is redeemed for $823,000.

Journalize the redemption of the bonds.

Q8- On the first day of the fiscal year, a company issues $39,000, 10%, four-year installment notes that have annual payments of $12,303. The first note payment consists of $3,900 of interest and $8,403 of principal repayment.

a- Journalize the entry to record the issuance of the installment notes.

b- Journalize the first annual note payment.

Q9- Berry Company reported the following on the company's income statement in two recent years:

Current Year Prior Year

Interest expense $400,000 $480,000

Income before income tax expense 4,720,000 4,992,000

a- Determine the number of times interest charges were earned for current Year and prior Year. Round to one decimal place.

b- Is the number of times interest charges are earned improving or declining?