Exercise 7-38 Effective interest amortization for a bond premium

Exercise 7-38 Effective interest amortization for a bond premium

On January 1, 2012, Crume Incorporated issued bonds with a face value of $100,000, a stated
rate of interest of 9 percent, and a five-year term to maturity. Interest is payable in cash on
December 31 of each year. The effective rate of interest was 8 percent at the time the bonds were
issued. The bonds sold for $103,993. Crume used the effective interest rate method to amortize
bond discount.

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Required
a. Prepare an amortization table as shown below 7-38 template on the excel sheet:
b. What item(s) in the table would appear on the 2014 balance sheet?
c. What item(s) in the table would appear on the 2014 income statement?
d. What item(s) in the table would appear on the 2014 statement of cash flows?

Problem 8-18 Recording and reporting stock transactions and cash dividends
across two accounting cycles

Davis Corporation was authorized to issue 100,000 shares of $10 par common stock and 50,000
shares of $50 par, 6 percent, cumulative preferred stock. Davis Corporation completed the following transactions during its first two years of operation.

2012

Jan. 2 Issued 5,000 shares of $10 par common stock for $28 per share.
15 Issued 1,000 shares of $50 par preferred stock for $70 per share.
Feb. 14 Issued 15,000 shares of $10 par common stock for $30 per share.
Dec. 31 During the year, earned $170,000 of cash service revenue and paid $110,000 of cash
operating expenses.
31 Declared the cash dividend on outstanding shares of preferred stock for 2012. The
dividend will be paid on January 31 to stockholders of record on January 15, 2013.

2013

Jan. 31 Paid the cash dividend declared on December 31, 2012.
Mar. 1 Issued 2,000 shares of $50 par preferred stock for $58 per share.
June 1 Purchased 500 shares of common stock as treasury stock at $43 per share.
Dec. 31 During the year, earned $210,000 of cash service revenue and paid $175,000 of cash
operating expenses.
31 Declared the dividend on the preferred stock and a $0.60 per share dividend on the
common stock.

Required
a. Organize the transaction data in accounts under an accounting equation.
b. Prepare the stockholders’ equity section of the balance sheet at December 31, 2012.