State whether the bonds will sell at a premium or discount:

• Spring issued $220,000 of bonds with a stated interest rate of 5 percent. At the time of issue, the market rate of interest for similar investments was 6 percent.

Jupiter Co. issued bonds with a face value of $150,000 on January 1, 2016. The bonds had a 6 percent stated rate of interest and a five-year term. The bonds were issued at face value.

Required

Write a memo explaining which option Jupiter would prefer.

State whether the bonds will sell at a premium or discount:

• Watson, Inc., issued callable bonds with a stated interest rate of 6 percent. The bonds were callable at 102. At the date of issue, the market rate of interest was 7 percent for similar investments.

A hurricane destroyed the inventory of Coleman Feed Store on September 21 of the current year. Although some of the accounting information was destroyed, the following information was discovered for the period of January 1 through September 21:

$$\begin{array}{lrrr} \text{Beginning Inventory, January 1} && \$120,000\\ \text{Purchases through September 21} && \text{450,000}\\ \text{Sales through September 21} && \text{800,000} \end{array}$$

The gross margin for Coleman Feed Store has traditionally been 35 percent of sales.

Required

Coleman Feed Store uses the perpetual inventory system. If some of the accounting records had not been destroyed, how would Coleman determine the amount of the inventory loss?

The following 2016 information is available for three companies:

$$\begin{array}{lrr} & \textbf{Bass Co.} & \textbf{Carp Co.} & \textbf{Perch Co.}\\ \\ \text{Face value of bonds payable} & \$300,000 & \$600,000 & \$500,000\\ \text{Interest rate} & \text{10\\\%} & \text{9\\\%} & \text{8\\\%}\\ \text{Income tax rate} & \text{40\\\%} & \text{30\\\%} & \text{35\\\%}\\ \end{array}$$

Required

Determine the annual after-tax interest cost for each company in dollars.

Which of the following is an example of tangible assets?

Select the appropriate benefit of adequate working capital.

The following 2016 information is available for three companies:

$$\begin{array}{lrr} & \textbf{Bass Co.} & \textbf{Carp Co.} & \textbf{Perch Co.}\\ \\ \text{Face value of bonds payable} & \$300,000 & \$600,000 & \$500,000\\ \text{Interest rate} & \text{10\\\%} & \text{9\\\%} & \text{8\\\%}\\ \text{Income tax rate} & \text{40\\\%} & \text{30\\\%} & \text{35\\\%}\\ \end{array}$$

Required

Determine the annual after-tax interest cost for each company as a percentage of the face value of the bonds.

On January 1, 2016, Kramer Co. borrowed cash from First City Bank by issuing a $90,000 face value, three-year term note that had a 7 percent annual interest rate. The note is to be repaid by making annual payments of$34,295 that include both interest and principal on December 31. Kramer invested the proceeds from the loan in land that generated lease revenues of $45,000 cash per year.

Required

Does cash outflow from operating activities remain constant or change each year? Explain.

The three typical accounting events associated with borrowing money through a bond issue are:

1. Exchanging the bonds for cash on the day of issue.

2. Making cash payments for interest expense and recording amortization when applicable.

3. Repaying the principal at maturity.

Required

Assuming the bonds are issued at a premium, show the effect of each of the three events on the financial statements using a horizontal statements model like the following one. Use + for increase, - for decrease, and NA for not affected.

$$\begin{array}{|l|l|r|r|} \textbf{Event} & \textbf{Assets = Liab. + Equity} & \textbf{Rev. - Exp. = Net. Inc.} & \textbf{Cash Flow}\\ \hline \text{ \hspace{10pt}1} \\ \end{array}$$

Return outwards appearing in trial balance are deducted from?

Lek Hood started a business by issuing a $70,000 face value note to State National Bank on January 1, 2016. The note had a 6 percent annual rate of interest and a 10-year term. Payments of$9,581 are to be made each December 31 for 10 years.

Required

What portion of the December 31, 2017, payment is applied to

(1) Interest expense?

(2) Principal?

The following 2016 information is available for three companies:

$$\begin{array}{lrr} & \textbf{Crow Co.} & \textbf{Robin Co.} & \textbf{Sparrow Co.}\\ \\ \text{Face value of bonds payable} & \$300,000 & \$600,000 & \$500,000\\ \text{Interest rate} & \text{8\\\%} & \text{7\\\%} & \text{6\\\%}\\ \text{Income tax rate} & \text{35\\\%} & \text{20\\\%} & \text{25\\\%}\\ \end{array}$$

Required

Determine the annual after-tax interest cost for each company in dollars.

The preparation of trial balance helps in?