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Surname 1

Name

Course

Date

Professor

Answers
8-1
Future value = $750,000
Present value interest factor (8%, 6 years) = 0.630
At initial investment = $750,000 * 0.630 = $472,500
8-4
Repayment schedule
Year Beginning balance Ending balance before payment payment
1 $164,440 184,173 40,000
2 144,173 161,473 40,000
3 121,473 136,050 40,000
4 96,050 107,576 40,000
5 67,576 75,685 40,000
6 35,685 39,967 39,967

8-6
April 1, 2008
Dr. Cash 260,000
Cr. Bonds 250,000
Payable
Cr. Bond 10,000
premium

October 1, 2008
Dr. Interest 10,000
Expense
Cr. Cash 10,000
Dr. Bond 500
Premium
Surname 2

Cr. Interest 500


expense

December 31, 2009


Dr. Interest 2,500
Expense
Cr. Interest 2,500
Expense
Dr. Bond 250
Premium
Cr. Interest 250
Expense

April 1, 2009
Dr. Interest Expense 2,500

Cr. Interest Payable (10,000 * 2,500


3/12)
Dr. Bond Premium 250

Cr. Interest Expense(10,000 * 250


3/12)

9-1
A)
Debt/Equity Ratio
= Total debt/shareholders’ equity
97,920/146,880 = 66.7%
Debt/capitalization ratio
Total long term debt including current portion of long term debt/ Equity + long term debt
79,560/226,440
= 35.1%
Total long term debt excluding current portion of long term debt/ Equity + long term debt
73,440/220,320
= 33.3%
Surname 3

B)
Both ratios are used to show the percentage of debt financing as compared to owners’ equity.
This is termed as the financial leverage in the firm capital structure. The purpose of calculating
the ratios is to determine the most appropriate ratio for the company financial structure.
9-2
A)
Basic earnings per share = (net income - preferred dividends)
Number of shares outstanding
Basic earnings per share = (19,550,000-3,900,000)/ 2,000,000 shares
= $7.83 per share
B)
Diluted earnings per share = (19,550,000-3,900,000)
2,000,000 + (200,000 – 100,000)
9-3

Weighted average number of shares outstanding during the fiscal year

(100,000 + 300,000 + 300,000 + 300,000)/4

= 250,000 shares

9-5

We assume they were not retired:

December 31, 2010

Dr. treasury stock 1,368,000

Cr. Cash 1,368,000

January 1, 2011
Surname 4

1)

Dr. Preferred dividends 224,000

stock

Cr. Dividends payable 224,000

2)

Dr. Dividends on common 1,500,000

stock

Cr. Dividends payable 1,500,000

3)

No entries as the stock dividend is effective

February 1, 2011

Dr. dividends payable 1,724,000

Cr. Cash 1,724,000

9-6

a) Common shares issued in 2010

800,000/10 = 80,000

650,000/10 = 65,000
Surname 5

80,000 – 65,000 = 15,000 shares

b)

(300,000 – 150,000)/ 50

=3,000 shares

Change in preferred stock + change in capital paid in capital

150,000 + 25,000

= 175, 000

175,000/3,000

= 58.33 per share

c)

Dr. Treasury stock 150,000

Cr. Cash 150,000

Average price = 150,000/10000 shares

= 15 per share

d)

Book value 2009 = 1,780,000

Book value 2010 = 2,354,000


Surname 6