Description
rate of interest of 9 percent, and a five-year term to maturity. Interest is payable in cash on
December 31 of each year. The effective rate of interest was 8 percent at the time the bonds were
issued. The bonds sold for $103,993. Crume used the effective interest rate method to amortize
bond discount.
Required
a. Prepare an amortization table as shown below 7-38 template on the excel sheet:
b. What item(s) in the table would appear on the 2014 balance sheet?
c. What item(s) in the table would appear on the 2014 income statement?
d. What item(s) in the table would appear on the 2014 statement of cash flows?
Problem 8-18 Recording and reporting stock transactions and cash dividends
across two accounting cycles
Davis Corporation was authorized to issue 100,000 shares of $10 par common stock and 50,000
shares of $50 par, 6 percent, cumulative preferred stock. Davis Corporation completed the following transactions during its first two years of operation.
2012
Jan. 2 Issued 5,000 shares of $10 par common stock for $28 per share.
15 Issued 1,000 shares of $50 par preferred stock for $70 per share.
Feb. 14 Issued 15,000 shares of $10 par common stock for $30 per share.
Dec. 31 During the year, earned $170,000 of cash service revenue and paid $110,000 of cash
operating expenses.
31 Declared the cash dividend on outstanding shares of preferred stock for 2012. The
dividend will be paid on January 31 to stockholders of record on January 15, 2013.
2013
Jan. 31 Paid the cash dividend declared on December 31, 2012.
Mar. 1 Issued 2,000 shares of $50 par preferred stock for $58 per share.
June 1 Purchased 500 shares of common stock as treasury stock at $43 per share.
Dec. 31 During the year, earned $210,000 of cash service revenue and paid $175,000 of cash
operating expenses.
31 Declared the dividend on the preferred stock and a $0.60 per share dividend on the
common stock.
Required
a. Organize the transaction data in accounts under an accounting equation.
b. Prepare the stockholders’ equity section of the balance sheet at December 31, 2012.
a. Notice that the carrying value begins at 103,993. It sold at a premium.
Every year, the carrying value decreases by the premium amortization.
b. Think about what is found on the Balance Sheet – assets, liabilities, and equity accounts. The
carrying value of the bond liability is the only thing on the table that fits into one of those
categories. Don’t forget to give the dollar amount in your answer.
c. Think about what is found on the income statement: only revenues and expenses. The only
thing on the table that is a revenue or expense is interest expense. Don’t forget to give the
dollar amount in your answer.
d. Cash payments are the only use of cash on the table. Don’t forget to give the dollar amount
in your answer.
Problem 8-18 (parts a and b)
Be sure to total the columns. You need the totals for part b.
Prefered stock dividends:
multiply the $50 par value x the 6% interest rate x the number of shares outstanding.
Use format found on page 297 for the Stockholders’ Equity section
Problem 7-38
a.
Date
January 1, 2012
December 31, 2012
December 31, 2013
December 31, 2014
December 31, 2015
December 31, 2016
Totals
Cash Payment
Interest Expense
Premium
Amortization
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b.
Item on the table that would appear on the 2014 balance sheet?
Dollar amount?
c.
Item on the table that would appear on the 2014 income stmt?
Dollar amount?
d.
Item on the table that would appear on the 2014 statement of cash flows?
Dollar amount?
Carrying Value
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Problem 8-18
Remember: use Excel formulas when applicable
a.
Davis Corporation
Accounting Equation
Event
2012
1/2
1/15
2/14
12/31
12/31
12/31
Assets
Cash
Balance
=
Liabilities +
Dividends
= Payable +
=
Stockholders’ Equity
Preferred
+
Stock
Common
+
Stock
+
PIC in
Excess
Preferred
Stock
+
+
+
b. 2012
Stockholders Equity
Preferred Stock, $50 par value, 6% cumulative
50,000 shares authorized, 1,000 shares
issued and outstanding
Common Stock, $10 par value,100,000
shares authorized, 20,000 shares issued
and outstanding
Paid-in Capital in Excess of Par-Preferred Stock
Paid-in Capital in Excess of Par-Common Stock
Total Paid-In Capital
Retained Earnings
Total Stockholders’ Equity
$
?
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?
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$
+
?
PIC in
Excess
Common
Stock
Treasury Retained
– Stock + Earnings
–
+
Acct. Title/RE
n/a
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