29 Jun tion BE 170 Layton Inc. is considering tw
uestion
BE 170
Layton Inc. is considering two alternatives to finance its construction of a new $5 million plant.
(a) Issuance of 500,000 shares of common stock at the market price of $10 per share.
(b) Issuance of $5 million, 9% bonds at par.
Instructions
Complete the following table.
Issue Stock Issue Bonds
Income before interest and taxes $2,000,000 $2,000,000
Interest expense from bonds _________ _________
Income before income taxes $ $
Income tax expense (30%) _________ _________
Net income $________ $________
Outstanding shares _________ 700,000
Earnings per share _________ _________
Outstanding shares (b) 1,200,000 700,000
Earnings per share (a)÷ (b) $1.17 $1.55
BE 171
On January 1, 2012, Morris Enterprises issued 9%, 5-year bonds with a face amount of $800,000 at par. Interest is payable semiannually on June 30 and December 31.
Instructions
Prepare the entries to record the issuance of the bonds and the first semiannual interest payment.
BE 172
On January 1, 2012, Bose Company issued bonds with a face value of $800,000. The bonds carry a stated interest of 7% payable each January 1 and July 1.
Instructions
a. Prepare the journal entry for the issuance assuming the bonds are issued at 95.
b. Prepare the journal entry for the issuance assuming the bonds are issued at 105.
BE 173
On July 1, 2012, Frog Corporation issued $600,000, 8%, 10-year bonds at face value. Interest is payable semiannually on January 1 and July 1. Frog Corporation has a calendar year end.
Instructions
Prepare all entries related to the bond issue for 2012.
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