Wilbury Corporation issued $1 million of 13.5% bonds for $985,071.68. The bonds are dated and issued October

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Wilbury Corporation issued $1 million of 13.5% bonds for $985,071.68. The bonds are dated and issued October 1, 2013, are due September 30, 2017, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%.

Required:

1. Prepare a bond interest expense and discount amortization schedule using the straight-line method.

2. Prepare a bond interest expense and discount amortization schedule using the effective interest method.

3. Prepare adjusting entries for the end of the fiscal year December 31, 2013, using the:

a. straight-line method of amortization

b. effective interest method of amortization

4. If income before interest and income taxes of 30% in 2014 is $500,000, compute net income under each alternative.

5. Assume the company retired the bonds on June 30, 2014, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the:

a. straight-line method of amortization

b. effective interest method of amortization

6. Compute the company's times interest earned (pretax operating income divided by interest expense) for 2014 under each alternative.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For  book-img-for-question

Intermediate Accounting Reporting and Analysis

ISBN: 978-1111822361

1st edition

Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach

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