Friday, June 3, 2016

Accounting - Fundamentals Common Stock , Bonds calculation solutions

Emma Corp. has the following balances in common stock, retained earnings, and AOCI, respectively as of December 31, 2010: $1 million, $9 million and $0. Par Value is $0.1/share.
Each question below should be answered independently of each other.

Given:
common stock
1,000,000
Retained Eanings
9,000,000
Accumulated other comprehensive income
0
Par value/share
0.1

1: On January 1, 2011 Emma Corp. acquires a EU based company. The fair value of the assets are 1 million Euros (there are no liabilities), and Emma Corp. buys 100% of the company for 1 million Euros. The US dollar to Euro exchange rate is 1:1. On December 31, 2011 the EU subsidiary still has 1 million Euro worth of assets but the exchange rate is now 1:2 (1 USD gets 2 Euros). Emma Corp. coverts the Euro denominated asset at the current exchange rate at the end of the year for purposes of consolidating the balance sheets of the two entities.

a)      What is other comprehensive income (OCI) for the year?
(1,000,000*.5)
-500000 USD

b)      What is the ending balance in AOCI? Specify if it is a debit or a credit.
-500000 USD
It is a credit account

c)       If Emma’s Net Income was $1.5 million, what is its comprehensive Income?
1,000,000 – 500,000 = 500,000

2: On December 31, 2011, Emma Corp declares a dividend of $100,000. The dividend is paid on January 15, 2012.  Show the journal entries for the dividend declaration and payment.

31-Dec-11
Retained Earnings
100,000
      Dividends Payable
100,000
15-Jan-12
Dividends Payable
100,000
      Cash
100,000




3: On December 31, 2011 Emma Corp. declares a 2 for 1 stock split. Provide the accounting for the transaction.

There will be no journal entry because we can assume that the stock split was accomplished by altering the par value in direct proportion to the number of new shares. I assume so because no increased amount in the common stock is mentioned in the case.

4: On December 31, 2011 Emma Corp. declares a 100% stock dividend. Provide the accounting for the transaction.

Retained Earnings
9,000,000

            Common stock @ 0.1 par value

900,000
            APIC

8,100,000

5: On January 1, 2011, Emma Corp. granted 1,000 options to the company employees and managers. The options have a 2 year vesting requirement. The options have a market value of $10 each. What are the 2011 accounting implications for the options?

1-Jan-11


Compensation Expense
5000

           Common stock @ 0.1 par value

500
            APIC

4500


6:  On January 1, 2011, Emma Corp. granted 100 restricted stock to the company employees and managers. The stock has a 2 year vesting requirement. The stock has a market value of $20 each. What are the 2011 accounting implications for the restricted stock?

1-Jan-11


Deferred compensation expense
2000

       APIC

2000
31-Dec-11


Compensation expense
1000

          Deferred compensation expense

1000




Emma Corp. on January 1, 2000 enters into a lease agreement with Wabash National for the lease of 10 tractor trailers. The lease is a 10 year agreement, equivalent to the estimated economic life of the trailers. Emma agrees to pay $150,000 every December 31 during the term of the lease. The implicit interest rate on the lease is 4%.

1: Would the lease be classified as an operating lease or a capital lease? Explain:
It is a capital lease because the lease term is for the entire estimated economic life of the leased property.
2. Show the journal entry at the date of lease initiation.
Present Value of the lease payments = 150,000*8.11090

January 1, 2000
Leased assets
1,216,635

     Lease Obligation

1,216,635


3. Prepare the journal entries for December 31, 2000. (Straight line method should be applied)

December 31, 2000
Depreciation Expense
40554.5

       Accumulated Depreciation

40554.5
Interest Expense
48,665.40

Lease Liability
101,334.60

        Cash

150,000.00


Question 4: How would the cash flow statement reflect the lease activity for the year? (be sure to explain or show all effects.)

Net income reduces by the amount of interest expense which is equal to $48,665.40
The depreciation expense is an add back because there's no actual cash flow and the add back value is 40,554.5
The Portion of Payment towards the principal (lease liability) is a financing activity and will appear in the Financing part of the cash flow statement







5. Show the Balance Sheet amounts for December 31 2001 and December 31, 2000.

Periods
Balance at  Beginning of the period
Interest Expense for the period
Cash Payment
Portion of payment reducing principal
Ending Balance
Jan 1,2000
1,216,635.0
48,665.4
150,000.0
101,334.6
1,115,300.4
Dec 31,2000
1,115,300.0
44,612.0
150,000.0
105,388.0
1,009,912.0
Dec 31,2001
1,009,912.0
40,396.5
150,000.0
109,603.5
900,308.5


Journal entry - December 31, 2000

Depreciation Expense
40554.5

       Accumulated Depreciation

40554.5

Assets =
Liabilities    +        Equity
-40554.5

-40554.5

                                                                                                                                                           
Interest Expense
48,665.40

Lease Liability
101,334.60

        Cash

150,000.00

Assets =
Liabilities    +       Equity
-150,000
-101,334.60
-48665.4

Balance sheet amounts affected:
Balance sheet – December 31, 2000
Current Assets:
Cash                                      
-150,000.00
Accumulated Depreciation      
-40,554.50
Non-Current Assets:
Leased Asset                             
1,216,635.00
Liabilities:
Lease Liability                         
101,334.60
Equity:
Expenses
Depreciation Expense                      
40,554.50
Interest Expense
48,665.40


Journal entry - December 31, 2001

Depreciation Expense
40554.5

       Accumulated Depreciation

40554.5

Assets =
Liabilities    +        Equity
-40554.5

-40554.5

Interest Expense
44,612.00

Lease Liability
105,388.00

        Cash

150,000.00

                                                                                                                                                           
Assets =
Liabilities    +       Equity
-150,000
-105,388
-44612

Balance sheet amounts affected:
Balance sheet – December 31, 2001
Current Assets:
Cash                                      
-150,000.00
Accumulated Depreciation      
-40,554.50
Non- Current Assets:
Leased Asset                             
1,216,635.00
Liabilities:
Lease Liability                         
105,338.00
Equity:
Expenses
Depreciation Expense                      
40,554.50
Interest Expense
44,612.40


6. Show the lease related income statement amounts for 2001.

 Expenses:
Depreciation Expense                      
40,554.50
Interest Expense
44,612.40

Emma Corp. issues on January 1, 2000 a $1 million face value bond that matures on December 31, 2009. The coupon or interest rate on the bond is 8%. Interest is payable each December 31. On the date of issue, based on the credit risk of Emma Corp., the market demands a return of 10% (i.e. market rate is 10%).

1: How much proceeds does Emma receive at issue?


 Semi-annual rate
Original Payment
1000000

Coupon Rate
8%
4%
Market Rate
10%
5%
Therefore, the bond sells on a discount


No. of years
10

Therefore, no. of payments
20

Interest Payment per half year
40000




Principal Payment (1,000,000/(1.05 power 20))
376889.5

Interest Premium (40000*((1-(1.05 power -20)/.05)
498488.4




Total Proceeds Received
875377.9

                                                                                                                  
2. Show the journal entry for the bond on the date of issue.

Journal Entry on Jan 1,2000
Cash
875378
      Bonds Payable
875378

3. Prepare the journal entry for the interest payment on December 31 and any other related consequences.

Journal Entry on Dec 31,2000
Interest Expense (NBV*.5*.1)
43769
      Bonds Payable
3769
      Cash
40000

4. On December 31, 2004, what is the carrying value or book value of the debt?
Carrying value of bond on Dec 31st,2004 
(1-((POWER(1.05,-10))/.05)*40000
308869




5. Assume the market rate of interest for Emma Corp. on December 31, 2004 is 8%. If Emma were to purchase in the market all of these bonds – how much would they have to pay?
To repurchase the bonds, Emma must pay:
Carrying value of bond on Jun 30,2004 has changed to

(1-((POWER(1.04,-10))/.04)*40000

Emma must pay
259549

6. Assuming they could repurchase all the bonds, would they recognize a gain or loss?
Purchase Price is lesser by
49321
Therefore, Emma Corp 'll gain thro' this transaction

7. How much is the gain or loss?
Emma Corp would recognize a gain of $49,321

Blades Cash Flow Statement for the Month of September, 2008

Cash from Operating Activities:

Receipts from Customers
63500
Merchandise Cost
-100000
Salary Expenses
-2000
Net cash from operations
-38500
Investing Activities

Plant Property and Equipment
-9000
Net cash from Investing Activities
-9000
Financing Activities

Long Term Debt
25000
Common Stock
15000
Net cash from Financing Activities
40000
Increase(Decrease) in cash and cash equivalents
-7500
Cash and Cash Equivalents at beginning of year
47000
Cash and Cash Equivalents at End of year
39500


1 comment:

  1. Tìm thuê Dịch vụ kế toán thuế giá rẻ tại hưng yên
    Tìm thuê Dịch vụ kế toán thuế giá rẻ tại vĩnh phúc
    Tìm thuê Dịch vụ kế toán thuế giá rẻ tại phú thọ
    Tìm thuê Dịch vụ kế toán thuế giá rẻ tại hải dương
    Tìm thuê Dịch vụ kế toán thuế giá rẻ tại quảng ninh
    Tìm thuê Dịch vụ kế toán thuế giá rẻ tại thái bình
    Tìm thuê Dịch vụ kế toán thuế giá rẻ tại bắc giang
    Tìm thuê Dịch vụ kế toán thuế giá rẻ tại thái nguyên
    Tìm thuê Dịch vụ kế toán thuế giá rẻ tại nam định
    Tìm thuê Dịch vụ kế toán thuế giá rẻ tại thanh hóa
    Tìm thuê Dịch vụ kế toán thuế giá rẻ tại hà nam
    Tìm thuê Dịch vụ kế toán thuế giá rẻ tại ninh bình
    Tìm thuê Dịch vụ kế toán thuế giá rẻ tại hà tĩnh
    Tìm thuê Dịch vụ kế toán thuế giá rẻ tại nghệ an
    Tìm thuê Dịch vụ kế toán thuế trọn gói giá rẻ
    Tìm thuê Dịch vụ kế toán thuế trọn gói giá rẻ tại quận cầu giấy
    Tìm thuê Dịch vụ kế toán thuế trọn gói giá rẻ tại quận tại từ liêm
    Tìm thuê Dịch vụ kế toán thuế trọn gói giá rẻ tại quận thanh xuân
    Tìm thuê Dịch vụ kế toán thuế trọn gói giá rẻ tại quận hà đông
    Tìm thuê Dịch vụ kế toán thuế trọn gói giá rẻ tại quận long biên
    Tìm thuê Dịch vụ kế toán thuế trọn gói giá rẻ tại quận đống đa
    Tìm thuê Dịch vụ kế toán thuế trọn gói giá rẻ tại quận ba đình
    Tìm thuê Dịch vụ kế toán thuế trọn gói giá rẻ tại quận tây hồ
    Tìm thuê Dịch vụ kế toán thuế trọn gói giá rẻ tại quận hoàng mai
    Tìm thuê Dịch vụ kế toán thuế trọn gói giá rẻ tại thanh trì
    Tìm thuê Dịch vụ kế toán thuế trọn gói giá rẻ tại quận hoàn kiếm
    Tìm thuê Dịch vụ kế toán thuế trọn gói giá rẻ tại quận hai bà trưng

    ReplyDelete