Gilliland Airlines is considering two alternatives for the financing of a purchase of fleet of airplanes. These two alternatives are:
- Issue 90,000 shares f common stock at $30 per share. (Cash dividends have not been paid nor is the payment of any contemplated.)
- Issue 10%, 10-year bonds at face value for $2,700,000.
It is estimated that the company will earn $800,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 120,000 shares of common stock outstanding prior to the new financing.
Instructions
Determined the effect on net income and earnings per share for these two method of financing.
Hatfield Corporation reports the following amounts in its 2019 financial statements:
- Compute the December 31, 2020, balance in stockholders' equity
- Compute the debt to assets ratio at December 31, 2020.
- Compute times interest earned for 2020.
Presented below are two independent situations
- Flinthills Car Rental leased a car to Jayhawk Company for one year. terms of the operating lease agreement call for monthly payments of $500.
- On January 1, 2020, Throm Inc. entered into an agreement to lease 20 computers from Drummond Electronics. The terms of the lease agreement require three annual rental payments of $20,000 (including 10% interest) beginning December 31, 2020. The present value of the three rental payments is $49,735. Throm considers this a capital lease.
- Prepare the appropriate journal entry to be made by Jayhawk Company for the first lease payment
- Prepare the journal entry to record the lease agreement on the books of Throm Inc. on January 1, 2020
Adcock Company issued $600,000, 9%, 20-year bonds on January 1, 2019, at 103. interest is payable annually on January 1. Adcock uses straight-line amortization for bond premium or discount.
Instructions
Prepare the journal entries to record the following.
- The issuance of the bonds
- The accrual of interest and the premium amortization on December 31, 2020
- The payment of interest on January 1, 2021..
- The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.
Gridley Company issued $800,000, 11%, 10-year bonds on December 31, 2020, for $730,000. Interest is payable annually on December 31. Gridley Company uses the straight-line method to amortize bond premium or discount.
Instructions
Prepare the journal entries to record the following.
- The issuance of the bonds
- The payment of interest and the discount amortization on December 31, 2021.
- The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.
Lorance Corporation issued $400,000, 7%, 20-year bonds on January 1, 2020, for $360,727. This price resulted in an effective-interest rate of 8% on the bonds. Interest is payable annually on January 1. Lorance uses the effecte-interest method to amortize bond premium or disocunt.
Instructions
Prepare the journal entries to record the following.
- The issuance of the bonds
- The accrual of interest and the discount amortization on December 31, 2020
- The payment of interest on January 1, 2021..
LRNA Company issued $380,000, 7%, 10-year bonds on January 1, 2020, for $407,968. This price resulted in an effective-interest rate of 6% on the bonds. Interest is payable annually on January 1. LRNA uses the effective-interest method to amortize bond premium or discount.
Instructions
Prepare the journal entries to record the following. (Round to the nearest dollar.)
- The issuance of the bonds
- The accrual of interest and the premium amortization on December 31, 2020
- The payment of interest on January 1, 2021