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Stocks and Bonds
Intel Inc. is the pioneer in the manufacture
of microprocessor for computers. The company’s fiscal year runs
from April 1 to March 31. On 4/1/2013, Intel Issued $5,000,000 of 11%
Bonds due in 10 years. The interest is payable annually on April 1.
The market rate of interest on that date for bonds of similar risk is 10%
1.
Prepare the journal entry for the issuance of the bonds and on
the first interest payment date.
2.
Use spreadsheet to prepare an amortization schedule for the
bonds.
Exercise 2
Presented below is the stockholders equity
section of Delta Inc.
All amounts are in million except for number of shares and par value
Stockholders’ Equity
(Deficit)
Current
Year
Prior
Year
Preferred
stock-20,000,000 shares authorized; none issued
$ -0-
$ -0-
Common stock-$1 par
value; 750,000,000 shares authorized; 182,350,259 shares issued
182
182
Additional paid-in
capital
2,521
2,605
Treasury shares at
cost: current year-21,194,312; prior year-22,768,027
(1,308)
(1,405)
Accumulated other
comprehensive loss
(664)
(785)
Accumulated deficit
(1,312)
(551)
$ (581)
$ 46
1.
Explain why the common stock is classified as part of the
stockholder’s equity.
2.
Explain why treasury stock is not classified as an asset.
3.
Explain what is meant by “Accumulated other comprehensive
loss.”
4.
Why is the accumulated deficit larger in the current year than
in the prior year?
5.
Compute book value per share for Delta for the current year.
Provide reference in
APA format if available.
Financial Investments
·
As auditor for Banquo & Associates, you have been assigned
to check Duncan Corporation’s computation of earnings per share for the current
year. The controller, Mac Beth, has supplied you with the following
computations.
Net income
$3,374,960
Common shares issued
and outstanding:
Beginning of year
1,285,000
End of year
1,200,000
Average
1,242,500
Earnings per share:
$3,374,960
= $2.72 per share
1,242,500
·
You have developed the following additional information.
1.
There are no other equity securities in addition to the common
shares.
2.
There are no options or warrants outstanding to purchase common
shares.
3.
There are no convertible debt securities.
4.
Activity in common shares during the year was as follows.
Outstanding, Jan. 1
1,285,000
Treasury shares
acquired, Oct. 1
1,035,000
Shares reissued,
Dec. 1
1,165,000
Outstanding, Dec. 31
1,200,000
·
Required:
1.
On the basis of the information above, do you agree with the
controller’s computation of earnings per share for the year? If you disagree,
prepare a revised computation of earnings per share
2.
Assume the same facts as those presented above, except that
options had been issued to purchase 140,000 shares of common stock at $10 per
share. These options were outstanding at the beginning of the year, and none
had been exercised or canceled during the year. The average market price of the
common shares during the year was $25, and the ending
market price was $35. What earnings per share amounts will be reported?
·
1)
Income Tax Calculations
Johnny Bravo Company began operations in 2012
and has provided the following information.
1. Pretax financial income for 2012 is
$100,000.
2. The tax rate enacted for 2012 and future years is 40%.
3. Differences between the 2012 income statement and tax return are listed
below.
(a) Warranty expense accrued for financial
reporting purposes amounts to $5,000. Warranty deductions
per the tax return amount to $2,000.
(b) Gross profit on construction contracts using the percentage-of-completion
method for book purposes
amounts to $92,000. Gross profit on construction contracts for tax purposes
amounts to $62,000.
(c) Depreciation of property, plant, and equipment for financial reporting
purposes amounts to $60,000.
Depreciation of these assets amounts to $80,000 for the tax return.
(d) A $3,500 fine paid for violation of pollution laws was deducted in
computing pretax financial income.
(e) Interest revenue earned on an investment in tax-exempt municipal bonds
amounts to $1,400.
4. Taxable income is expected for the next few
years.
a.
Prepare the journal entry to record income tax expense, deferred
taxes, and income taxes payable for 2012.
b.
Draft the income tax expense section of the income statement,
beginning with “Income before income taxes”
