C14-150 Early retirement of debt-2

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School

Harding University *

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Course

310

Subject

Accounting

Date

Jun 18, 2024

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xlsx

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7ba84b410ca801aa539cfa0759525f8b55385ff7.xlsx Assumptions Accounting 310 Early Retirement of Debt in Financial Statements Objective Variables Cash 70,000 Tax rate 30.00% Bond payable 400,000 Interest rate 5.00% Proceeds factor 1 1, 2, 3, or 4 Cost to retire 3 1, 2, 3, or 5 Diagnostics The system is operating correctly Accounts payable > $10,000 - Net income > $10,000 - Solutions worksheet Entry - Balance sheet - - - Net income > $10,000 - Taxes payable >$1,000 - Tax accrual Assignment worksheet Balance sheet - - Computations Term 6 Proceeds at the date of issuance 412,000 Cost to retire bond 408,000 Payment Interest Change Bond January 1, 20X1 4.420% 412,000 December 31, 20X1 20,000 18,210 (1,790) 410,210 December 31, 20X2 20,000 18,131 (1,869) 408,341 December 31, 20X3 20,000 18,048 (1,952) 406,389 December 31, 20X4 20,000 17,962 (2,038) 404,351 December 31, 20X5 20,000 17,872 (2,128) 402,222 December 31, 20X6 20,000 17,778 (2,222) 400,000 Sales 477,000 Cost of goods sold 200,000 Salary expense 101,600 Operating expenses 93,000 Interest expense 17,962 Pretax income 64,438 Tax expense 19,331 Net income 45,107 Earnings per share $ 0.75 Beginning retained earnings 88,000 Net income 45,107 Dividends declared (5,100) Ending retained earnings 128,007 20X3 20X4 Cash 435,900 478,000 Accounts receivable 35,400 38,800 Inventory 19,300 18,200 Land 267,200 293,000 Total 757,800 828,000 Accounts payable 168,511 107,911 Salaries payable 4,500 4,900 Taxes payable 14,000 15,331 Dividends payable 1,600 1,300 Bonds payable 406,389 404,351 Common stock ($1 par) 27,000 59,900 Additional paid-in capital 47,800 106,300 Retained earnings 88,000 128,007 Total 757,800 828,000 Correct Correct Correct Correct Correct Correct Bond 400,000 400,000 400,000 400,000 400,000 400,000 Coupon rate 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Interest payment 20,000 20,000 20,000 20,000 20,000 20,000 Term 6 6 6 6 6 6 Issue price 412,000 412,000 412,000 412,000 412,000 412,000 Market rate 4.42% 4.42% 4.42% 4.42% 4.42% 4.42% Term at retirement 2 2 2 2 3 1 Carrying value at retirement 404,351 404,351 404,351 404,351 406,389 402,222 Cost to retire 408,000 408,000 408,000 408,000 408,000 408,000 Gain (loss) (3,649) 3,649 (4,000) 4,000 (1,611) (5,778) Students will demonstrate their understanding of early retirement of bonds by updating a set of financial statements to reflect the retirement.

7ba84b410ca801aa539cfa0759525f8b55385ff7.xlsx Page 1 Accounting 310 Early Retirement of Debt in Financial Statements Par value of the bond 400,000 Coupon rate 5.00% Proceeds from the issuance 412,000 Term 6 Cost to retire the debt 408,000 Tax rate 30.00% Payment Interest Change Bond January 1, 20X1 December 31, 20X1 December 31, 20X2 December 31, 20X3 December 31, 20X4 December 31, 20X5 December 31, 20X6 Journalize the entry to record the retirement Income Statement 20X4 20X4 for the year ended December 31 Original Corrected Sales $ 477,000 $ 477,000 Cost of goods sold 200,000 200,000 Salary expense 101,600 101,600 Operating expenses 93,000 93,000 Interest expense 17,962 Gain (loss) on retirement of debt Pretax income 64,438 Tax expense 19,331 Net income $ 45,107 Earnings per share $ 0.75 KC Brewery issued a bond payable on the interest payment date as follows. The company is considering the retirement of the bond on December 31, 20X4. You have been asked to update the financial statements as of that date to reflect the retirement of the debt.

7ba84b410ca801aa539cfa0759525f8b55385ff7.xlsx Page 2 Accounting 310 Early Retirement of Debt in Financial Statements Statement of Retained Earnings 20X4 20X4 for the year ended December 31, Original Corrected Beginning retained earnings $ 88,000 $ 88,000 Net income 45,107 Dividends declared (5,100) (5,100) Ending retained earnings $ 128,007 Balance Sheet 20X4 20X4 as of December 31 20X3 Original Corrected Cash $ 435,900 $ 478,000 Accounts receivable 35,400 38,800 38,800 Inventory 19,300 18,200 18,200 Land 267,200 293,000 293,000 Total $ 757,800 $ 828,000 Accounts payable $ 168,511 $ 107,911 $ 107,911 Salaries payable 4,500 4,900 4,900 Taxes payable 14,000 15,331 Dividends payable 1,600 1,300 1,300 Bonds payable 406,389 404,351 Common stock ($1 par) 27,000 59,900 59,900 Additional paid-in capital 47,800 106,300 106,300 Retained earnings 88,000 128,007 Total $ 757,800 $ 828,000

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