i. The company Sure Win makes an early redemption of bond for $315,000 on July 1,...

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i. The company Sure Win makes an early redemption of bond for $315,000 on July 1, 2022. However, these bonds, with a par value of $300,000, were issued at a premium for $309,000 on the issue date. There is still a remaining unamortized amount of $3,000 of the premium on bonds payable right before the retirement. Required: Prepare the journal entry to record the retirement of the bonds on July 1, 2022. (4 marks) ii. Jackson Corporation is planning a $200,000 expansion to meet increasing demand for its product. Jackson Corporation is considering two plans to raise the money. Under Plan A, bonds with a contract rate of interest of 8% would be issued. Under Plan B, 10,000 additional ordinary shares would be issued at $20 per share. The corporation currently has 100,000 shares outstanding, and it expects to earn $300,000 per year before bond interest and income taxes. The net profit and return on investment for both plans is shown below: Plan A 300,000 $ (16,000) 284,000 $ (99,400) $ Plan B Earnings before bond interest and taxes $ Bond interest expense 300,000 300,000 (105,000) 195,000 Income before taxes Income taxes Net profit 184,600 $ Equity Return on Equity $2,000,000 $2,200,000 9.23% 8.86% Required: Please compare the above two plans to raise the money. (4 marks) i. The company Sure Win makes an early redemption of bond for $315,000 on July 1, 2022. However, these bonds, with a par value of $300,000, were issued at a premium for $309,000 on the issue date. There is still a remaining unamortized amount of $3,000 of the premium on bonds payable right before the retirement. Required: Prepare the journal entry to record the retirement of the bonds on July 1, 2022. (4 marks) ii. Jackson Corporation is planning a $200,000 expansion to meet increasing demand for its product. Jackson Corporation is considering two plans to raise the money. Under Plan A, bonds with a contract rate of interest of 8% would be issued. Under Plan B, 10,000 additional ordinary shares would be issued at $20 per share. The corporation currently has 100,000 shares outstanding, and it expects to earn $300,000 per year before bond interest and income taxes. The net profit and return on investment for both plans is shown below: Plan A 300,000 $ (16,000) 284,000 $ (99,400) $ Plan B Earnings before bond interest and taxes $ Bond interest expense 300,000 300,000 (105,000) 195,000 Income before taxes Income taxes Net profit 184,600 $ Equity Return on Equity $2,000,000 $2,200,000 9.23% 8.86% Required: Please compare the above two plans to raise the money. (4 marks)

Answer rating: 100% (QA)

Summary of the information provided in the question Redemption value 315000 Face value of the bond 3... View the full answer