Accounting Project

Period ended

Interest expense

Amortized premium

Bonds payable

Premium on bonds payable

Carrying value

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Part I On January 1, 2011, a company sells a 3-year bond with a face value of $48,000 and a stated interest rate of 8%. Because the market interest rate is 6%, the company receives $50,566 for the bond. The company uses the effective interest method of amortization. Fill in Table A. Fill in Table B assuming the market interest rate is 10%, and the company received only $45,613 for the bond and the company uses the effective-interest method.

Table A

Table B

Part II On January 1, 2010, ABC issues $40 million of 8% bonds, due in 15 years, with interest payable semi-annually on June 30 and December 31 each year.

Requirement 1:

If the market rate is 7%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price.

Requirement 2:

If the market rate is 8%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price.

Requirement 3:

If the market rate is 9%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price.

Part III

April 1, 2009—XYZ Corp. today announced that its Board of Directors has declared a cash dividend of $1.18 per share on its 505,500 outstanding preferred shares. The dividend will be paid on May 31, 2009, to preferred shareholders of record at the close of business on May 26, 2009. The Board of Directors also announced a 100% common stock dividend will occur on May 31, 2009, on its 1,010,000 outstanding $0.01 par common stock for stockholders of record on May 26, 2009.

Requirement 1:

Prepare any journal entries that XYZ Corp. should make as the result of information in the preceding report.

Part IV AAA Inc. is developing its annual financial statements at December 31, 2011. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statements are summarized.

	2011	2010
Balance Sheet
Cash		50,200			73,000
Accounts receivable		80,100			70,200
Merchandise inventory		60,900			66,000
Property and equipment		110,600			60,100
Less: Accumulated depreciation		(29,400	)		(14,100	)

		272,400			255,200

Accounts payable	$	10,100		$	12,200
Wages payable		2,100			1,000
Notes payable, long-term		50,900			60,300
Contributed capital		100,100			80,100
Retained earnings		109,200			101,600

	$	272,400		$	255,200

Income Statement
Sales	$	200,900
Cost of good sold		110,200
Depreciation expense		15,300
Other expenses		50,400

Net income	$	25,000

Additional Data:

a.	Bought equipment for cash, $50,500.
b.	Paid $9,400 on long-term note payable.
c.	Issued new shares of stock for $20,000 cash.
d.	Cash dividends of $17,400 were declared and paid.
e.	Accounts payable are exclusively related to inventory purchases on credit.
f.	Tax expense ($4,000) and interest expense ($3,000) were paid in full at the end of both years and are included in other expenses.

(a)

Prepare the statement of cash flows for 2011 using the indirect method.

Part V The financial information below presents operating revenue and expenses for 2011 as well as the starting and ending balances for relevant asset and liability accounts that changed during the year:


Sales revenue	$	909,972	Depreciation expense	$	3,226
Cost of goods sold		445,623	Selling, general & administrative expenses		91,386
Interest expense		12,492	Income tax expense		143,136
Accounts receivable 12/31/2010		65,325	Accounts receivable 12/31/2011		67,900
Accounts payable 12/31/2010		16,590	Accounts payable 12/31/2011		17,321
Prepaid expenses 12/31/2010		4,147	Prepaid expenses 12/31/2011		3,865
Inventory 12/31/2010		7,872	Inventory 12/31/2011		6,531

Required: Calculate the net cash flow from operating activities in 2011 using the direct method.