Accounting 2 Handouts 11. SG Electronics is considering two plans


Question Description:

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  1. SG Electronics is considering two plans for raising $3,000,000 to expand operations. Plan A is to issue 6% bonds payable, and plan B is to issue 100,000 shares of common stock. Before any new financing, SG has net income of $300,000 and 200,000 shares of common stock outstanding. Management believes the company can use the new funds to earn additional income of $500,000 before interest and taxes. The income tax rate is 40%.

Requirement

Analyze SG Electronics’ situation to determine which plan will result in higher earnings per share. Use the following figure as a guide.

  1. Captain Johnny Whizbang Hamburgers, Inc., issued 4%, 10-year bonds payable at 85 on December 31, 2010. At December 31, 2012, Captain Johnny reported the bonds payable as follows:

Captain Johnny uses the straight-line amortization method and pays semiannual interest each June 30 and December 31.

Requirements

R1. Answer the following questions about Captain Johnny Whizbang’s bonds payable:

R2. Record the June 30, 2013, semiannual interest payment and amortization of discount.

R3. What will be the carrying amount of the bonds at December 31, 2013?

 

  1. The accounting records of Path Leader Wireless include the following:

Requirement

Report these liabilities on the Path Leader Wireless balance sheet, including headings and totals for current liabilities and long-term liabilities.

Answer

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