Reference no: EM133053741
Question 1 - Helen Parish started a design company on January 1, Year 1. On April 1, Year 1, Parish borrowed cash from a local bank by issuing a one-year $58,000 face value note with annual interest based on an 14 percent discount. During Year 1, Parish provided services for $30,500 cash.
Required - Answer the following questions. (Hint: Record the events in T-accounts prior to answering the questions.)
What is the amount of total liabilities on the December 31, Year 1, balance sheet?
What is the amount of net income on the Year 1 income statement?
What is the amount of cash flow from operating activities on the Year 1 statement of cash flows?
Provide the general journal entries necessary to record issuing the note on April 1, Year 1; recognizing accrued interest on December 31, Year 1; and repaying the loan on March 31, Year 2.
Question 2 - Harden Company issued a $48,300 face value discount note to National Bank on July 1, Year 1. The note had a 5.00 percent discount rate and a one-year term to maturity.
Required - Prepare general journal entries for the following transactions: (Round your final answers to the nearest whole dollar. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
The issuance of the note on July 1, Year 1.
The adjustment for accrued interest at the end of the year, December 31, Year 1.
Recording interest expense for Year 2 and repaying the principal on June 30, Year 2.
Question 3 - The following information is available for three companies.
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Rope Company
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Chain Company
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Line Company
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Face value of bonds payable
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$316,000
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$661,000
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$645,000
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Interest rate
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6%
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5%
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4%
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Income tax rate
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40%
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25%
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30%
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Required -
a. Determine the annual before-tax interest cost for each company in dollars.
b. Determine the annual after-tax interest cost for each company in dollars.
c. Determine the annual after-tax interest cost for each company as a percentage of the face value of the bonds.