Individual Problems #6

Submitted on: September 2, 2014

Submitted by: Jenna Leig
Chapter 8
Exercise
8-17
2011
!ug" #1
$as %1,&00 ' 1(&)*
+nearned Subs,ription -evenue
.S/ Payable
16(&
1&00
1(&
2011
0e," #1
.S/ Payable
.S/ I$
1(&
1(&
2011
0e," #1
+nearned Subs,ription -evenue
%1&0014212*
Subs,ription -evenue
&00
&00
) .S/ $al,ulation 1&00 1 1#3 4 1(&
5ntario /raveller 6aga7ine
8alan,e Seet
0e,ember #1, 2011
$urrent !ssets: $urrent Liabilities:
$as9999999999"99" :16(& .S/
Payable99999999999""99 :0
+nearned
-evenue999999999" 1000
/otal $urrent !ssets"9999"" :16(& /otal $urrent
Liabilities99999999"":1000
8-24
$al,ulations:
100,000 1 0"06 1 %6212* 4 #,000
#000210 4 #002year
#00212 4 1&0 semi;annually
2011
Jan" #1
$as %100,000 1 "(<*
0is,ount on 8onds Payable
8onds Payable
/o issue 63, 10;year bonds at a dis,ount"
(<,000
#,000
100,000
2011
July #1
Interest =1pense
0is,ount on 8onds Payable
$as
/o pay semi;annual interest and amorti7e
bond dis,ount"
#1&0
1&0
#000
2011
0e," #1
Interest =1pense %#1&0 1 &26*
0is,ount on 8onds Payable %1&01&26*
Interest Payable %#0001&26*
/o a,,rue semi;annual interest and
amorti7e bond dis,ount"
262&
12&
2&00
8-27
-e>uirement 1:
! 8 $ 0 =
Semi;
!nnual
Interest
0ate
Interest
Payment
%43 o?
maturity
value*
Interest
=1pense
%Pre,eding
8ond $arrying
!mount 1
mar@et
interest rate*
0is,ount
!morti7ati
on
%!;8*
0is,ount
!,,ount
8alan,e
%Pre,eding 0;
$*
8ond
$arrying
!mount
%:&00,000
' 0*
June
#0211
&#,12& &&#,12&
0e,
#1211
20,000 1(,#&( 641 &2,4A4 &&2,4A4
June
#0212
20,000 1(,##< 66# &1,A21 &&1,A21
0e,
#1212
20,000 1(,#14 6A6 &1,1#& &&1,1#&
June 20,000 1(,2(0 <10 &0,42& &&0,42&
#021#
$al,ulations:
Issue pri,e: &00,000 1 110"62& 4 &&#,12&
Interest Payment: &00,000 1 0"0A 1 %6212* 4 20,000
-e>uirement 2:
2011
June #0
$as
8onds Payable
Premium on 8onds Payable
/o issue A3, 20;year bonds at a premium"
&&#,12
& &00,000
&#,12&
2011
0e," #1
Interest =1pense
Premium on 8onds Payable
$as
/o pay semi;annual interest and amorti7e
bond premium"
1(,#&(
641
20,000
2012
June #0
Interest =1pense
Premium on 8onds Payable
$as
/o pay semi;annual interest and amorti7e
bond premium"
1(,##<
66#
20,000
8-33
-e>uirement 1:
8onds Payable
8onds Payable
$as
Bain on de;re,ognition o? bonds
/o re,ord reCnan,ing o? old bonds Dit
neD bonds"
12&,000,
000 <&,000,0
00
1#,000,0
00
#<,000,0
00
-e>uirement 2:
5ld:
:12&,000,000 1 0"0&& 4 :6,A<&,000
EeD:
:<&,000,000 1 0"0( 4 :6,6<&,000
-e>uirement #
8y issuing bonds, +nited Produ,ts is not diluting ,ontrol o? te ,orporation"
Issuing bonds Dill also result in iger earnings per sare be,ause te
earnings on borroDed money usually ends up e1,eeding te interest e1pense
%.arrison et al, 2012*" /e old bonds Dere paying out an annual interest
e1pense o? :6,A<&,000 and te neD bonds only pay out annual interest
e1pense o? :6,6<&,000" /is diFeren,e is >uite large ,onsidering te
maturity period o? te bonds and Dill result in an in,rease in net in,ome %due
to retained earnings* o? :200,000 per year"
/e debt ratio prior to te reCnan,ing Das 0"<& and te debt ratio a?ter te
reCnan,ing Das 0"6A" !s you ,an see, tis ratio redu,ed signiC,antly Di,
soDs an improvement in te ,ompanyGs overall ability to repay teir debts"
/is Dill alloD ?or ?urter Cnan,ing ?rom ,reditors, i? needed"
-e?eren,es
.arrison, .orngren, Lemon, H Seguin" %2012*" Financial accounting" %4 ed"*"
Pearson =du,ation $anada"