HW DUE 030113

On January 1, 2013, JWS Corporation issued $771,000 of 9% bonds, due in 8 years. The bonds were issued for $729,219, and pay interest each July 1 and January 1. JWS uses the effective-interest method. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 10%. (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
(a)
(b)
(c)

Wasserman Corporation issued 10-year bonds on January 1, 2013. Costs associated with the bond issuance were $191,800. Wasserman uses the straight-line method to amortize bond issue costs. Prepare the December 31, 2013, entry to record 2013 bond issue cost amortization. (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

Samson Corporation issued a 5-year, $92,800, zero-interest-bearing note to Brown Company on January 1, 2013, and received cash of $46,138. The implicit interest rate is 15%. Prepare Samson’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest. (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
(a)
(b)

Foreman Company issued $756,000 of 10%, 20-year bonds on January 1, 2013, at 102. Interest is payable semiannually on July 1 and January 1. Foreman Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%. Prepare the journal entries to record the following. (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(a)		The issuance of the bonds.
(b)		The payment of interest and related amortization on July 1, 2013.
(c)		The accrual of interest and the related amortization on December 31, 2013.

No.	Account Titles and Explanation	Debit	Credit
(a)
(b)
(c)

On January 1, 2012, Osborn Company sold 11% bonds having a maturity value of $843,000 for $943,973, which provides the bondholders with a 8% yield. The bonds are dated January 1, 2012, and mature January 1, 2017, with interest payable December 31 of each year. Osborn Company allocates interest and unamortized discount or premium on the effective-interest basis. (a) Prepare the journal entry at the date of the bond issuance. (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

(b) Prepare a schedule of interest expense and bond amortization for 2012–2014. (Round answers to 0 decimal places, e.g. $38,548.)

Schedule of Interest Expense and Bond Premium Amortization Effective-Interest Method
Date		Cash Paid		Interest Expense		Premium Amortized		Carrying Amount of Bonds
1/1/12		$		$		$		$
12/31/12
12/31/13
12/31/14

(c) Prepare the journal entry to record the interest payment and the amortization for 2012. (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

(d) Prepare the journal entry to record the interest payment and the amortization for 2014. (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

The following amortization and interest schedule reflects the issuance of 11-year bonds by Capulet Corporation on January 1, 2006, and the subsequent interest payments and charges. The company’s year-end is December 31, and financial statements are prepared once yearly.

Amortization Schedule
Year		Cash		Interest		Amount Unamortized		Carrying Value
1/1/2006						$17,896		$ 132,804
2006		$15,070		$15,936		17,030		133,670
2007		15,070		16,040		16,060		134,640
2008		15,070		16,157		14,973		135,727
2009		15,070		16,287		13,756		136,944
2010		15,070		16,433		12,393		138,307
2011		15,070		16,597		10,866		139,834
2012		15,070		16,780		9,156		141,544
2013		15,070		16,985		7,241		143,459
2014		15,070		17,215		5,096		145,604
2015		15,070		20,166				150,700

(a) Indicate whether the bonds were issued at a premium or a discount.  (b) Indicate whether the amortization schedule is based on the straight-line method or the effective-interest method.  (c) Determine the stated interest rate and the effective-interest rate. (Round answers to 0 decimal places, e.g. $38,548.)

The stated rate			%
The effective rate			%

(d) On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2006. (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

(e) On the basis of the schedule above, prepare the journal entry to reflect the bond transactions and accruals for 2006. (Interest is paid January 1.) (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

(f) On the basis of the schedule above, prepare the journal entries to reflect the bond transactions and accruals for 2013. Capulet Corporation does not use reversing entries. (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2013
Dec. 31, 2013

Novak Corporation is preparing its 2012 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each item will affect Novak’s 2012 statement of cash flows.

Code Letter		Effect
A		Added to net income in the operating section
D		Deducted from net income in the operating section
R-I		Cash receipt in investing section
P-I		Cash payment in investing section
R-F		Cash receipt in financing section
P-F		Cash payment in financing section
N		Noncash investing and financing activity

(a)		Purchase of land and building.
(b)		Decrease in accounts receivable.
(c)		Issuance of stock.
(d)		Depreciation expense.
(e)		Sale of land at book value.
(f)		Sale of land at a gain.
(g)		Payment of dividends.
(h)		Increase in accounts receivable.
(i)		Purchase of available-for-sale investment.
(j)		Increase in accounts payable.
(k)		Decrease in accounts payable.
(l)		Loan from bank by signing note.
(m)		Purchase of equipment using a note.
(n)		Increase in inventory.
(o)		Issuance of bonds.
(p)		Retirement of bonds payable.
(q)		Sale of equipment at a loss.
(r)		Purchase of treasury stock.

Bloom Corporation had the following 2012 income statement.

Sales		$209,620
Cost of goods sold		118,970
Gross profit		90,650
Operating expenses (includes depreciation of $24,940)		54,020
Net income		$36,630

The following accounts increased during 2012: Accounts Receivable $11,030; Inventory $10,310; Accounts Payable $14,820. Prepare the cash flows from operating activities section of Bloom’s 2012 statement of cash flows using the direct method.

Bloom Corporation Statement of Cash Flows-Direct Method (Partial) For the Year 2012
		$
	$
		$

Cash received from customers	=	($209,620 – $11,030)	=	$198,590
Cash payment to suppliers	=	($118,970 + $10,310 – $14,820)	=	$114,460
Cash payment for operating expenses	=	($54,020 – $24,940)	=	$29,080

Loveless Corporation had the following 2012 income statement.

Revenues		$102,933
Expenses		58,460
		$44,473

In 2012, Loveless had the following activity in selected accounts.

Accounts Receivable
1/1/12 21,440 Revenues 102,933 12/31/12 35,093	Write-offs 1,010 Collections 88,270
Allowance for Doubtful Accounts
Write-offs 1,010	1/1/12 1,248 Bad debt expense 1,762 12/31/12 2,000

(a) Prepare Loveless’s cash flows from operating activities section of the statement of cash flows using the direct method.

Loveless Corporation Statement of Cash Flows-Direct Method (Partial) For the Year 2012
		$
		$

(b) Prepare Loveless’s cash flows from operating activities section of the statement of cash flows using the indirect method. (If an amount reduces the account balance then enter with negative sign.)

Loveless Corporation Statement of Cash Flows-Indirect Method (Partial) For the Year 2012
		$
		$

(a)		Cash paid for expenses	=	($58,460 – $1,762)	=	$56,698
(b)		Increase in net accounts receivable	=	($33,093* – $20,192**)	=	$12,901
		* ($35,093 – $2,000) = $33,093
		** ($21,440 – $1,248) = $20,192

Norman Company’s income statement for the year ended December 31, 2012, contained the following condensed information.

Service revenue				$831,780
Operating expenses (excluding depreciation)		$627,170
Depreciation expense		60,370
Loss on sale of equipment		20,580		708,120
Income before income taxes				123,660
Income tax expense				39,850
Net income				$83,810

Norman’s balance sheet contained the following comparative data at December 31.

		2012		2011
Accounts receivable		$37,420		$58,130
Accounts payable		46,480		32,000
Income taxes payable		3,710		8,060

(Accounts payable pertains to operating expenses.) Prepare the operating activities section of the statement of cash flows using the direct method.

NORMAN COMPANY Statement of Cash Flows (Partial) For the Year Ended December 31, 2012
		$
	$
		$

Norman Company’s income statement for the year ended December 31, 2012, contained the following condensed information.

Service revenue				$842,220
Operating expenses (excluding depreciation)		$620,990
Depreciation expense		56,270
Loss on sale of equipment		23,980		701,240
Income before income taxes				140,980
Income tax expense				41,940
Net income				$99,040

Norman’s balance sheet contained the following comparative data at December 31.

		2012		2011
Accounts receivable		$37,810		$59,540
Accounts payable		45,130		31,690
Income taxes payable		4,200		8,960

(Accounts payable pertains to operating expenses.) Prepare the operating activities section of the statement of cash flows using the indirect method. (If an amount reduces the account balance then enter with negative sign.)

NORMAN COMPANY Statement of Cash Flows (Partial) For the Year Ended December 31, 2012
		$
Adjustments to reconcile net income to
	$
		$

Condensed financial data of Fairchild Company for 2012 and 2011 are presented below.

FAIRCHILD COMPANY COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2012 AND 2011
		2012		2011
Cash		$1,805			$1,097
Receivables		1,753			1,301
Inventory		1,594			1,919
Plant assets		1,901			1,696
Accumulated depreciation		(1,191	)		(1,167	)
Long-term investments (held-to-maturity)		1,306			1,475
		$7,168			$6,321
Accounts payable		$1,205			$794
Accrued liabilities		205			246
Bonds payable		1,410			1,637
Common stock		1,900			1,698
Retained earnings		2,448			1,946
		$7,168			$6,321

FAIRCHILD COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2012
Sales		$6,845
Cost of goods sold		4,708
Gross margin		2,137
Selling and administrative expenses		924
Income from operations		1,213
Other revenues and gains
Gain on sale of investments		96
Income before tax		1,309
Income tax expense		534
Net income		$775

Additional information: During the year, $63 of common stock was issued in exchange for plant assets. No plant assets were sold in 2012. Cash dividends were $273. Prepare a statement of cash flows using the indirect method. (If an amount reduces the account balance then enter with negative sign.)

FAIRCHILD COMPANY Statement of Cash Flows For the Year Ended December 31, 2012 (Indirect Method)
		$
Adjustments to reconcile net income to
	$
		$
		$
Depreciation expense	=	($1,191 – $1,167)	=	$24
Sale of held-to-maturity investments	=	[($1,475 – $1,306) + $96]	=	$265
Purchase of plant assets	=	[($1,901 – $1,696) – $63]	=	($142)
Issuance of capital stock	=	[($1,900 – $1,698) – $63]	=	$139