The following information is available for three companies. Rope Company $364,000 Face value of bonds payable Interest rate Income tax rate 6% 35% Chain Company $ 620,000 5% 20% Line Company $ 538,000 4% 25% Required a. Determine the annual before-tax interest cost for each company in dollars. b. Determine the annual after-tax interest cost for each company in dollars. c. Determine the annual after-tax interest cost for each company as a percentage of the face value of the bor

The following information is available for three companies. Rope Company $364,000 Face value of bonds payable Interest rate Income tax rate 6% 35% Chain Company $ 620,000 5% 20% Line Company $ 538,000 4% 25% Required a. Determine the annual before-tax interest cost for each company in dollars. b. Determine the annual after-tax interest cost for each company in dollars. c. Determine the annual after-tax interest cost for each company as a percentage of the face value of the bor

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 2TP: Below is select information from two, independent companies. Additional information includes: On...

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he following information is available for three companies. Rope Company Chain Company Line Company Face value of bonds payable$ 314,000 $760,000 $630,000 Interest rate Income tax rate 8% 30% 7% 15% 6% 20% Required a. Determine the annual before-tax interest cost for each company in dollars. b. Determine the annual after-tax interest cost for each company in dollars. c. Determine the annual after-tax interest cost for each company as a percentage of the face value of the bonds.
Question Related data of John-j Company: Face amount P2,550,000 Nominal rate 12% Effective rate 14% Date of issue January 1, 2021 Annual payment every December 31 P850,000 (Principal and interest) Interest is payable annually December 31 The entity used 3 decimal places for the PVF. Required: What is the present value of the bonds payable on January 1, 2021?
Related data of John-j Company: Face amount P2,550,000 Nominal rate 12% Effective rate 14% Date of issue January 1, 2021 Annual payment every December 31 P850,000 (Principal and interest) Interest is payable annually December 31 The entity used 3 decimal places for the PVF. Bonds mature on January 1, 2023 Required: What is the present value of the bonds payable on January 1, 2021?
Question Five: Below given are the Income statement and Balance Sheet of ABC Corp. for the year 2021. Income statement Sales Costs Taxable income Taxes (40%) Net income Current Assets Fixed Assets $ 6,000.00 3,900.00 2,100,000 840.000 $ 1,260,000 Total 5,000 7,000 12,000 Balance Sheet Current Liabilities 1,200 Long Term Debt Equity 4,000 Total 6,800 12,000 Assets and costs are proportional to sales and Debt and Equity are not. The company maintains a constant 40% dividend payout ratio. As with every other firm in its industry, next year's sales are projected to increase by exactly 10%. 60 % Required: a) Draw the 2022 pro-forma Income Statement and the Balance sheet for ABC Corp and find the External Financing Figure (needs). 2022
Balance sheet and income statement data indicate the following: Company A Company B $1,200,000 495,000 75,000 50,000 21,000 Bonds payable, 8%, 24-year bonds Income before income tax for year Income tax for year Interest payable Interest receivable 28,000 a. For each company, what is the times interest earned ratio? (Round to one decimal place.) $900,000 130,000 12,000 Company A Company B b. Which company gives potential creditors more protection?
The following data were abstracted from the records of Johnson Corporation for the year: Sales P1,800,000 Bond interest expense 60,000 Income taxes 300,000 Net income 400,000 How many times was bond interest earned? Group of answer choices 11.67 13.67 7.67 12.67
Financials of B Ltd are as follows. 10% Debt 6500; Tax 35%. Find cost of Debt. a. 5.60% b. 6.50% c. 7.50% d. 5.70%
The following selected information are made available by AAA company for the current year: Accounts Payable120,000 Bonds Payable 800,000 Warranty payable200,000 Total Liabilities1,300,000 Net Sales1,650,000 Total Assets2,200,000 In the common size statement of financial position, prepaid expense will have a proportional percentage of bonds payable? The total Noncurrent asset of CAM Company is P1,000,000 and the Equity is 1,200,000. The company has no liabilities during the period. If cash and cash equivalent is 500,000, what will be its proportional percentage in the common-size statement of financial position?
Cost of Debt Financing Stinson Corporations cost of debt financing is 6%. Its tax rate is 30%. Required: Calculate the after-tax interest rate. (Vote: Round answer to one decimal place.)
Below is select information from two, independent companies. Additional information includes: On January 1, Company A issued a 5-year $1,500,000 bond with at 6% stated rate. Interest is paid semiannually and the bond was sold at 105.5055 to yield a market rate of 4.75%. On January 1, Company B sold $1,500,000 of common stock and paid dividends of $75,000. A. Prepare an income statement for each company (ignore taxes) B. Explain why the net income amounts are different, paying particular attention to the operational performance and financing performance of each company. (Hint: it may be helpful for you to create an amortization table).
Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.
Whirlie Inc. issued $300,000 face value, 10% paid annually, 10-year bonds for $319,251 when the market of interest was 9%. The company uses the effective-interest method of amortization. At the end of the year, the company will record ________. A. a credit to cash for $28,733 B. a debit to interest expense for $31,267 C. a debit to Discount on Bonds Payable for $1,267 D. a debit to Premium on Bonds Payable for $1.267