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ACCT_557 Chapter 10 Homework
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Exercise 10-9 |
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Global Airlines is considering two alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are:
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1. |
Issue 60,000 shares of common stock at $40 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) |
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2. |
Issue 10%, 10-year bonds at face value for $2,400,000. |
It is estimated that the company will earn $800,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 90,000 shares of common stock outstanding prior to the new financing.
Determine the effect on net income and earnings per share for these two methods of financing. (Round earnings per share to 2 decimal places, e.g. $2.25.)
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Plan One Issue Stock |
Plan Two Issue Bonds |
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Net income |
$ |
$ |
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Earnings per share |
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$ |
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Exercise 10-12 |
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Pueblo Company issued $300,000 of 5-year, 8% bonds at 98 on January 1, 2014. The bonds pay interest twice a year.
(a) (1) Prepare the journal entry to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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Account Titles and Explanation |
Debit |
Credit |
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(2) Compute the total cost of borrowing for these bonds.
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Total cost of borrowing |
$ |
(b) (1) Prepare the journal entry to record the issuance of the bonds, assuming the bonds were issued at 104. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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Account Titles and Explanation |
Debit |
Credit |
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(2) Compute the total cost of borrowing for these bonds, assuming the bonds were issued at 104.
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Total cost of borrowing |
$ |
Click here if you would like to Show Work for this question
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Exercise 10-15 |
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Tucki Co. receives $240,000 when it issues a $240,000, 8%, mortgage note payable to finance the construction of a building at December 31, 2014. The terms provide for semiannual installment payments of $17,660 on June 30 and December 31.
Prepare the journal entries to record the mortgage loan and the first two installment payments. (Round answers to 0 decimal places, e.g. 15,250. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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Date |
Account Titles and Explanation |
Debit |
Credit |
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Dec. 31, 2014 |
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June 30, 2015 |
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Dec. 31, 2015 |
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