Gainesville Corporation’s income statement revealed sales of $700,000; gross profit of $300,000; selling and administrative costs of $140,000; and income taxes of $45,000. The selling and administrative expenses included $10,000 for depreciation. The company’s operating activities generated positive cash flow of $129,000. Use the “indirect” approach to demonstrate how this amount was calculated. The following additional information is available:
Accounting assignment.
Areas of Focus:
• Define Bonds. Why does a company purchase bonds? What is the basic journal entry to record a bond purchase? What does it mean if a bond is purchased at par, discount and premium? How are these bond purchases recorded?
• What does it mean to issue bonds? Why does a company issue bonds? There are two methods a company can choose to amortize a discount or premium – describe them. What does amortize mean?
• What is the statement of cash flows? Describe the two forms of the statement. Describe each of the categories on the statement and what is included in each category.
Bond Purchases: (Understanding how a company records bonds that they purchased)
http://principlesofaccounting.com/chapter9/chapter9.html#url scroll down to held to maturity securities
B-09.05-07 Bond investment purchased at par, premium & discount
Issuing Bonds: (Understanding how a company records bonds that they issued)
http://www.principlesofaccounting.com/chapter13/chapter13.html#Nature
B-13.06 -08 Bonds at par, premium and discount – straight line amortization
No Ch 15 HW
Preparing the operating section of the statement of cash flows – indirect
http://www.principlesofaccounting.com/chapter16/chapter16.html#Using
B-16.14 Preparation of statement of cash flows (indirect)
Part 1
Beckwith Boots invested $100,000 in 5-year bonds issued by Ace Brick Company. The bonds were purchased at par on January 1, 20X1, and bear interest at a rate of 8% per annum, payable semiannually.
(a) Prepare the journal entry to record the initial investment on January, 20X1.
(b) Prepare the journal entry that Beckwith would record on each interest date.
(c) Prepare the journal entry that Beckwith would record at maturity of the bonds.
(d) How much cash flowed “in” and “out” on this investment, and how does the difference compare to total interest income that was recognized?
Part 2
Beckwith Boots invested $100,000 in 5-year bonds issued by Ace Brick Company. The bonds were purchased at 103, and bear interest at a stated rate of 8% per annum, payable semiannually.
(a) Prepare the journal entry to record the initial investment on January, 20X1.
(b) Prepare the journal entry that Beckwith would record on each interest date.
(c) Prepare the journal entry that Beckwith would record at maturity of the bonds.
(d) How much cash flowed “in” and “out” on this investment, and how does the difference compare to total interest income that was recognized?
Part 3
Beckwith Boots invested $100,000 in 5-year bonds issued by Ace Brick Company. The bonds were purchased at 98, and bear interest at a stated rate of 8% per annum, payable semiannually.
(a) Prepare the journal entry to record the initial investment on January, 20X1.
(b) Prepare the journal entry that Beckwith would record on each interest date.
(c) Prepare the journal entry that Beckwith would record at maturity of the bonds.
(d) How much cash flowed “in” and “out” on this investment, and how does the difference compare to total interest income that was recognized?
Part 1
Ace Brick company issued $100,000 of 5-year bonds. The bonds were issued at par on January 1, 20X1, and bear interest at a rate of 8% per annum, payable semiannually.
(a) Prepare the journal entry to record the bond issue on January, 20X1.
(b) Prepare the journal entry that Ace would record on each interest date.
(c) Prepare the journal entry that Ace would record at maturity of the bonds.
(d) How much cash flowed “in” and “out” on this bond issued, and how does the difference compare to total interest expense that was recognized?
Part 2
Ace Brick company issued $100,000 of 5-year bonds. The bonds were issed at 103, and bear interest at a stated rate of 8% per annum, payable semiannually. The premium is amortized by the straight-line method.
(a) Prepare the journal entry to record the initial issue on January, 20X1.
(b) Prepare the journal entry that Horton would record on each interest date.
(c) Prepare the journal entry that Horton would record at maturity of the bonds.
(d) How much cash flowed “in” and “out” on this bond issue, and how does the difference compare to total interest expense that was recognized?
Part 2
Ace Brick company issued $100,000 of 5-year bonds. The bonds were issued at 98, and bear interest at a stated rate of 8% per annum, payable semiannually. The discount is amortized by the straight-line method.
(a) Prepare the journal entry to record the initial issue on January, 20X1.
(b) Prepare the journal entry that Horton would record on each interest date.
(c) Prepare the journal entry that Horton would record at maturity of the bonds.
(d) How much cash flowed “in” and “out” on this bond issue, and how does the difference compare to total interest expense that was recognized?
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