MBA560 Financial and Managerial Accounting: Module 4 Homework (E7-38 and P8-19)

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MBA560 Financial and Managerial Accounting
Module 4 Homework

Exercise 7-38 Effective interest amortization for a bond premium
On January 1, 2012, Crume Incorporated issued bonds with a face value of $100,000, a stated 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.

a. Prepare an amortization table as shown below 7-38 template on the excel sheet:
Cash Payment Interest Expense Premium Amortization Carrying Value
January 1, 2012 103,993
December 31, 2012 9,000 8,319 681 103,312
December 31, 2013 ? ? ? ?
December 31, 2014 ? ? ? ?
December 31, 2015 ? ? ? ?
December 31, 2016 ? ? ? ?
Totals 45,000 41,007 3,993
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?

P8-19 Recording and reporting treasury stock transactions
Midwest Corp completed the following transactions in 2012, the first year of operation.
1. Issued 20,000 shares of $10 par common stock at par.
2. Issued 2,000 shares of $30 stated value preferred stock at $32 per share.
3. Purchased 500 shares of common stock as treasury stock for $15 per share.
4. Declared a five percent dividend on preferred stock.
5. Sold 300 shares of treasury stock for $18 per share.
6. Paid the cash dividend on preferred stock that was declared in event four.
7. Earned cash service revenue of $75,000 and incurred cash operating expenses of $42,000.
8. Appropriated $6,000 of retained earnings.

a. Organize the transaction in accounts under an accounting equation.
b. Prepare the stockholders equity section of the balance sheet as of December 31, 2012.
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