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pshichka [43]
2 years ago
12

Logan Corporation issued $800,000 of 8% bonds on October 1, 2006, due on October 1, 2011. The interest is to be paid twice a yea

r on April 1 and October 1. The bonds were sold to yield 10% effective annual interest. Logan Corporation closes its books annually on December 31.
Instructions

(a) Prepare the amortization schedule (effective interest method) through October 1, 2007.

(b) Prepare the adjusting entry for December 31, 2007. Use the effective-interest method.

(c) Compute the interest expense to be reported in the income statement for the year ended December 31, 2007.
Business
1 answer:
Aleks04 [339]2 years ago
3 0

Answer:

a)

period     interest       interest       discount     amortized      bond's

               payment     expense     on BP          discount        carrying value

0                                                     49,320.60                        750,679.40

1               32,000       37,533.97   43,786.63   5,533.97       756,213.37

2              32,000       37,810.67    37,975.96   5,810.67       762,024.04

3              32,000       38,101.20    31,874.76     6,101.20       768,125.24

4              32,000       38,406.26   43,786.63   6,406.26      774,531.50

b)

December 31, 2017, accrued interest on bonds payable

Dr Interest expense 19,050.60

    Cr Interest payable 16,000

    Cr Discount on bonds payable 3,050.60

c)

total interest expense year 2007:

($37,533.97/2) + $37,810.67 + ($38,101.20/2) = $18,776.99 + $37,810.67 + $19,050.60 = $75,638.26

Explanation:

the market price of the bonds:

$800,000 / 1.05¹⁰ = $491,130.60

$32,000 x 8.1109 (PV annuity factor, 4%, 10 periods) = $259,548.80

market price = $750,679.40

discount on bonds payable $49,320.60

discount amortization first payment = (750,679.40 x 0.05) - 32,000 = 5,533.97

discount amortization second payment = (756,213.37 x 0.05) - 32,000 = 5,810.67

discount amortization third payment = (762,024.04 x 0.05) - 32,000 = 6,101.20

discount amortization fourth payment = (768,125.24 x 0.05) - 32,000 = 6,406.26

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Condensed financial data of Windsor, Inc. follow. Windsor, Inc. Comparative Balance Sheets December 31 Assets 2022 2021 Cash $56
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                                      Windsor, Inc.

                             Statement of Cash Flows

                                  December 31, 2022

Cash flow from operating activities

Net income                                                                           $108,206

Adjustments to net income                                                   $19,005

  • Depreciation expense $32,550
  • Loss on disposal of assets $5,250
  • Increase in prepaid expenses ($1,680)
  • Increase in accounts payable $24,290
  • Increase in accounts receivable ($34,860)
  • Increase in inventory ($6,755)
  • Decrease in accrued expenses payable ($3,150)

<u>                                                                                                               </u>

Total cash flow from operating activities                           $123,851

Cash flow from investing activities

Increase in long term investments                                    ($20,300)

Purchase in new plant assets                                            ($70,000)

Proceeds from disposal of assets                                         $1,050

<u>                                                                                                               </u>

Total cash flow from investing activities                          ($89,250)

Cash flow from financing activities

Issuance of common stocks                                                $31,500

Payment of bonds payable                                               ($25,200)

Dividends paid                                                                     ($18,221)

<u>                                                                                                              </u>

Total cash flow from financing activities                            ($11,921)

Total increase in cash                                                        $22,680

Cash balance December 31, 2021                                     $33,880

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Cash balance December 31, 2022                                    $56,560

Explanation:

2022 2021

Cash $56,560 $33,880 +22,680

Accounts receivable 61,460 26,600 +34,860

Inventory 78,750 71,995 +6,755

Prepaid expenses 19,880 18,200 +1,680

Long-term investments 96,600 76,300 +20,300

Plant assets 199,500 169,750 +29,750

Accumulated depreciation (35,000) (36,400) -1,400

Total $477,750 $360,325

Liabilities and Stockholders' Equity

Accounts payable $71,400 47,110 +24,290

Accrued expenses payable 11,550 14,700 -3,150

Bonds payable 77,000 102,200 -25,200

Common stock 154,000 122,500 +31,500

Retained earnings 163,800 73,815 +89,985

Total $477,750 $360,325

Depreciation expense 32,550

Interest expense 3,311

Loss on disposal of plant assets 5,250

Net income $108,206

cash dividend of $18,221

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