1. West, Inc. issued $2,000,000 par value, 8%, 5 year bonds on January 1, 2012. Interest is to be paid semiannually on June 30 and December 31. The market value at the time the bonds were sold was 10% annual return. The company uses the interest method of amortization. (25 pts.)
a. Calculate the issue price of the bonds using the following Present Value factors, you can round your answer to the nearest whole dollar. (Hint: Calculate the present value of the bond par value and the present value of the interest payments to get the total present value – the amount the bonds can be issued for!):
b. Using the issue price from (a), prepare an amortization schedule for the first three payment periods using the format shown below. Round all amounts to the nearest whole dollar.
c. Prepare the journal entry necessary when the first interest payment is made on June 30, 2012.
2. Haladam Company had the following transactions relating to investments during the year. Prepare the required general journal entries for these transactions. (20 points)
On May 4, Haladam purchased 600 shares of Cob Company stock at $120 per share plus a $750 brokerage fee. These are classified as available-for-sale investments.
On July 1, Haladam received a $2.50 per share cash dividend on the Cob Company stock.
On September 5, Haladam sold 300 shares of Cob Company stock for $125 per share, less a $450 brokerage fee.
3. Wiffery Company had the following available-for-sale securities in its portfolio at December 31. The Fair Value Adjustment – Available-for-Sale account had a balance of zero prior to year-end adjustment. Prepare the appropriate adjusting journal entry. (10 points)
Cost Market Value
IBM $ 24,500 $ 25,900
Microsoft 51,000 48,600
Intel 62,300 61,000
Dell 29,900 30,200
Totals $167,700 $165,700
4. The following information is available for the Ehrens Corporation (45 points):
(1) Investments were sold for $500 cash.
(2) Bonds were retired at a cost of $17,250.
(3) Old equipment with an original cost of $37,550 was sold for $2,100 cash.
(4) New equipment was purchased for $67,550 cash.
(5) Cash dividends of $33,600 were paid.
(6) Additional shares of stock were issued for $25,000 cash.
Prepare a complete statement of cash flows for calendar-year 2009 using the indirect method.