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vekshin1
3 years ago
12

On September 30, 2012, Wildhorse Company issued 9% bonds with a par value of $580,000 due in 20 years. They were issued at 97 an

d were callable at 103 at any date after September 30, 2017. Because Wildhorse Company was able to obtain financing at lower rates, it decided to call the entire issue on September 30, 2018, and to issue new bonds. New 7% bonds were sold in the amount of $700,000 at 104; they mature in 20 years. Wildhorse Company uses straight-line amortization. Interest payment dates are March 31 and September 30.
Required:
Prepare journal entries to record the redemption of the old issue and the sale of the new issue on September 30, 2018.
Business
1 answer:
xxMikexx [17]3 years ago
8 0

Answer:

Wildhorse Company

Journal Entries:

September 30, 2018:

Debit 9% Bonds Payable $580,000

Debit Bond Redemption Expenses $17,400

Credit Cash $597,400

To record the redemption of the 9% Bonds Payable at 103.

September 30, 2018:

Debit Cash $728,000

Credit 7% Bonds Payable $700,000

Credit Bonds Premium $28,000

To record the sale of 7% Bonds Payable at 104.

Explanation:

a) Dat and Calculations:

9% bonds payable at par value = $580,000

Issued at a discount of $17,400 ($580,000 * 97/100) - $580,000

Redeemed at a premium of $17,400 ($580,000 * 103/100) - $580,000

7% bonds payable at par value = $700,000

Issued at a premium of $28,000 ($700,000 * 104/100) - $700,000

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Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all produc
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Answer:

<u><em>Part a </em></u>

<u>Belmain Co.</u>

<u>Estimated Income statement for the year ended 2017.</u>

Sales ($240 x 12,000)                                                               $2,880,000

<u>Less Variable Costs :</u>

Direct Materials ($50.00 x 12,000)                                           ($600,000)

Direct Labor ($30.00 x 12,000)                                                 ($360,000)

Factory Overheads ($6.00 x 12,000)                                          ($72,000)

Sales Salaries and Commissions ( $4.00 x 12,000)                  ($48,000)

Miscellaneous selling expenses ( $1.00 x 12,000)                     ($12,000)

Supplies ($4.00 x 12,000)                                                           ($48,000)

Miscellaneous administrative expenses ($1.00 x 12,000)         ($12,000)

Contribution                                                                               $1,728,000

<u>Less Fixed Expenses :</u>

Factory overhead                                                                     ($350,000)

Sales salaries and commissions                                             ($340,000)

Advertising                                                                                 ($116,000)

Travel                                                                                            ($4,000)

Miscellaneous selling expense                                                   ($2,300)

Office and officers’ salaries                                                    ($325,000)

Supplies                                                                                        ($6,000)

Miscellaneous administrative expense                                      ($8,700)

Net Income ( Loss)                                                                     $576,000

<u><em>Part b</em></u>

0.6 or 60 %

<u><em>Part c</em></u>

Break-even sales (units) = 8,000

Break-even sales (dollars) = $1,920,000

<u><em>Part d</em></u>

<em>See attachment </em>

<u><em>Part e</em></u>

Margin of safety in dollars  =    $960,000

Margin of safety in percentage  =  33.3 %

<em><u>Part f</u></em>

Operating Leverage = 3.00

Explanation:

<u>Income Statement :</u>

<em>Sales - Expenses = Income</em>

Note : I have separated Variable and Fixed Expenses

<u>Contribution Margin ratio :</u>

<em>Contribution Margin ratio = Contribution ÷ Sales</em>

                                          =  $1,728,000  ÷  $2,880,000

                                          = 0.6 or 60 %

<u>Break-even sales ( units and dollars) :</u>

<em>Break-even sales (units) = Fixed Costs ÷ Contribution per unit</em>

                                        = $1,152,000 ÷ $144.00

                                        = 8,000

<em>Break-even sales (dollars) = Fixed Costs ÷ Contribution margin ratio</em>

                                            = $1,152,000 ÷ 0.60

                                            = $1,920,000

<u>Margin of safety in dollars and as a percentage of sales :</u>

<u />

<em>Margin of safety in dollars  = Expected Sales (dollars) - Break-even sales (dollars)</em>

                                             =  $2,880,000 - $1,920,000

                                             =   $960,000

<em>Margin of safety in %       = (Expected Sales  - Break-even sales ) ÷ Expected Sales</em>

                                             = $960,000 ÷ $2,880,000

                                             = 33.3 %

<u>Operating leverage</u>

<em>Operating Leverage = Contribution ÷ Earnings Before Interest and Tax</em>

                                  =  $1,728,000 ÷ $576,000

                                  = 3.00

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