. The company Sure Win makes an early redemption of bond for $315,000 on July 1, 2022. However, these bonds, with a par
Posted: Sun Apr 10, 2022 8:30 am
. The company Sure Win makes an early redemption of bond for
$315,000 on July 1, 2022. However, these bonds, with a par value of
$300,000, were issued at a premium for $309,000 on the issue date.
There is still a remaining unamortized amount of $3,000 of the
premium on bonds payable right before the retirement.
Required:
Prepare the journal entry to record
the retirement of the bonds on July 1, 2022. (4 marks)
ii. Jackson Corporation is planning a $200,000 expansion to meet
increasing demand for its product. Jackson Corporation is
considering two plans to raise the money. Under Plan A, bonds with
a contract rate of interest of 8% would be issued. Under Plan B,
10,000 additional ordinary shares would be issued at $20 per share.
The corporation currently has 100,000 shares outstanding, and it
expects to earn $300,000 per year before bond interest and income
taxes. The net profit and return on investment for both plans is
shown below:
Plan A
Plan B
Earnings before bond interest and taxes
$ 300,000
$ 300,000
Bond interest expense
(16,000)
Income before taxes
$ 284,000
$ 300,000
Income taxes
(99,400)
(105,000)
Net profit
$ 184,600
$ 195,000
Equity
$2,000,000
$2,200,000
Return on Equity
9.23%
8.86%
Required:
Please compare the above two plans to
raise the money. (4 marks)
$315,000 on July 1, 2022. However, these bonds, with a par value of
$300,000, were issued at a premium for $309,000 on the issue date.
There is still a remaining unamortized amount of $3,000 of the
premium on bonds payable right before the retirement.
Required:
Prepare the journal entry to record
the retirement of the bonds on July 1, 2022. (4 marks)
ii. Jackson Corporation is planning a $200,000 expansion to meet
increasing demand for its product. Jackson Corporation is
considering two plans to raise the money. Under Plan A, bonds with
a contract rate of interest of 8% would be issued. Under Plan B,
10,000 additional ordinary shares would be issued at $20 per share.
The corporation currently has 100,000 shares outstanding, and it
expects to earn $300,000 per year before bond interest and income
taxes. The net profit and return on investment for both plans is
shown below:
Plan A
Plan B
Earnings before bond interest and taxes
$ 300,000
$ 300,000
Bond interest expense
(16,000)
Income before taxes
$ 284,000
$ 300,000
Income taxes
(99,400)
(105,000)
Net profit
$ 184,600
$ 195,000
Equity
$2,000,000
$2,200,000
Return on Equity
9.23%
8.86%
Required:
Please compare the above two plans to
raise the money. (4 marks)