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natta225 [31]
3 years ago
8

The following section is taken from Blossom's balance sheet at December 31, 2021. Current liabilities Interest payable $ 40,500

Long-term liabilities Bonds payable (8%, due January 1, 2025) 505,000 Interest is payable annually on January 1. The bonds are callable on any annual interest date. (a) Journalize the payment of the bond interest on January 1, 2022. (b) Assume that on January 1, 2022, after paying interest, Blossom calls bonds having a face value of $100,000. The call price is 103. Record the redemption of the bonds. (c) Prepare the adjusting entry on December 31, 2022, to accrue the interest on the remaining bonds.
Business
1 answer:
aev [14]3 years ago
3 0

Answer:

(a) Journalize the payment of the bond interest on January 1, 2022.

Dr Interest payable - bonds payable 40,400

    Cr Cash 40,400

The interest expense on the bonds payable should have been accrued on the 2021 balance sheet, that is why we debit interest payable and not interest expense.

(b) Assume that on January 1, 2022, after paying interest, Blossom calls bonds having a face value of $100,000. The call price is 103. Record the redemption of the bonds.

Dr Bonds payable 100,000

Dr Call premium 3,000

    Cr Cash 103,000

(c) Prepare the adjusting entry on December 31, 2022, to accrue the interest on the remaining bonds.

interest expense = $405,000 x 8% = $32,400

Dr Interest expense - bonds payable 32,400

    Cr Interest payable - bonds payable 32,400

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Required: 1-a. Prepare a contribution format income statement for the game last year. 1-b. Compute the degree of operating lever
Flura [38]

Question Completion:

Magic Realm, Inc., has developed a new fantasy board game. The company sold 32,400 games last year at a selling price of $67 per game. Fixed expenses associated with the game total $567,000 per year, and variable expenses are $47 per game. Production of the game is entrusted to a printing contractor. Variable expenses consist mostly of payments to this contractor. Required: 1-a. Prepare a contribution format income statement for the game last year. 1-b. Compute the degree of operating leverage. 2. Management is confident that the company can sell 41,796 games next year (an increase of 9,396 games, or 29%, over last year). Given this assumption: a. What is the expected percentage increase in net operating income for next year?

Answer:

Magic Realm, Inc.

1-a. Contribution-Format Income Statement

For the last year ended December 31

Sales revenue          $2,170,000 (32,400 * $67)

Variable costs            1,522,800 (32,400 * $47)

Contribution               $647,200 (32,400 * $20)

Fixed expenses           567,000

Net operating income $80,200

1-b. Degree of Operating Leverage = Contribution/Net operating income

= 8.07

The expected percentage increase in net operating income for next year

= 235.3%

Explanation:

a) Data and Calculations:

Last year's figures:

Sales = 32,400 games

Selling price per game = $67

Variable cost per game = $47

Fixed expenses = $567,000 per year

1-a. Contribution-Format Income Statement

For the last year ended December 31

Sales revenue          $2,170,000 (32,400 * $67)

Variable costs            1,522,800 (32,400 * $47)

Contribution               $647,200 (32,400 * $20)

Fixed expenses           567,000

Net operating income $80,200

1-b. Degree of Operating Leverage = Contribution/Net operating income

= $647,200/$80,200 = 8.07

2. Next year:

Sales = 41,796 games

Sales revenue =         $2,800,332 (41,796 * $67)

Variable cost =               1,964,412  (41,796 * $47)

Contribution =              $835,920

Fixed costs =                  567,000

Net operating income $268,920

The expected percentage increase in net operating income for next year

Increase in net operating income = $188,720 ($268,920 - $80,200)

= $188,720/$80,200 * 100 = 235.3%

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