1.
Prepare for Company I the long-term liabilities section for the year ended December 31, 2019.
1.
Explanation of Solution
Retained earnings:
Retained earnings are that portion of profits which are earned by a company but not distributed to stockholders in the form of dividends. These earnings are retained for various purposes like expansion activities, or funding any future plans.
Prepare for Company I the long-term liabilities section for the year ended December 31, 2019.
Particulars | Amount in $ |
Long -term liabilities: | |
9% unsecured note payable to bank, due in annual principal instalments of $800,000, less current portion (1) | 3,200,000 |
11% debenture bonds payable due December 31, 2028, plus unamortized premium of $337,640 (2) | 5,337,640 |
Total long-term liabilities | 8,537,640 |
(Table 1)
Working notes:
(1) Calculation of 9% of notes payable to bank:
Particulars | Amount in $ |
9% of notes payable to bank: | |
Notes payable, 11/2/19 | $ 4,000,000 |
Deduct instalment due 11/2/20 | ($ 800,000) |
Long-term portion,12/31/19 | $ 3,200,000 |
(Table 2)
(2) Calculation of debenture on bonds payable:
Particulars | Amount in $ | Amount in $ |
Carrying amount, 12/31/18 | 5,352,400 | |
Deduct amortization of bond premium: | ||
Interest paid 12/31/19 | 550,000 | |
Less: effective interest | (535,240) | (14,760) |
Carrying amount, 12/31/19 | 5,337,640 |
(Table 3)
2.
Prepare Company I’s shareholder’s equity section for the year ended December 31, 2019, balance sheet.
2.
Explanation of Solution
Company I | ||
Shareholder's equity section | ||
For the year ended December 31,2019 | ||
Particulars | Amount in $ | Amount in $ |
Contributed Capital: | ||
Common stock, $10 par; 2,000,000 shares authorized; 840,000 shares issued; 829,500 shares outstanding(3) | 8,400,000 | |
Additional paid-in capital: (4) | 2,485,000 | |
Retained earnings (5) | 4,765,000 | |
Accumulated other comprehensive income (loss): | ||
Unrealized decrease in value of marketable equity Securities (6) | (20,000) | |
Total contributed capital, retained earnings, and accumulated other comprehensive loss | 15,630,000 | |
Less: | (130,000) | |
Total Shareholders’ Equity | 15,500,000 |
(Table 4)
Working notes:
(3) Calculate the amount of common stock issued:
Particulars | Date | Shares | Amount |
Balance | December 31,2018 | 5,150,000 | |
Add: 5% stock dividend issued | March 3, 2019 | (150,000) | |
Balance | December 31,2019 | 8,400,000 |
(Table 5)
(4) Calculate the amount of additional paid-in capital on common stock:
Particulars | Amount in $ |
Balance, December 31, 2018 | 3,500,000 |
Deduct: Treasurystockreissued1/16/2019 | (30,000) |
Stock dividend issued on March 3, 2019 | 160,000 |
Balance, December 31, 2019 | 2,485,000 |
(Table 6)
(5) Calculate the amount of retained earnings:
Particulars | Amount in $ |
Balance, December 31, 2018 | 2,465,000 |
Deduct : Stock dividend issued,3/2/2019 | (560,000) |
Net income for 2019 | 2,860,000 |
Balance, December 31, 2019 | 4,765,000 |
(Table 7)
(6) Calculate the amount of unrealised decrease in the value of available-for-sale of securities:
(7) Calculate the amount of treasury stock at cost:
3.
Prepare a schedule representing the interest expense for the year ended December 31, 2019.
3.
Explanation of Solution
Particulars | Amount in $ |
Interest expense: | |
Note payable to bank (8) | 60,000 |
Debenture bonds payable (9) | 535,240 |
Total interest expense | 595,240 |
(Table 8)
Working notes:
(8) Calculate the amount of interest expense on the notes payable on bank:
(9) Calculate the amount of interest expense on debentures bond payable:
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Chapter 16 Solutions
Intermediate Accounting: Reporting And Analysis
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