Issue Stock Issue Bonds

Income before interest and taxes $ 800,000 $ 800,000

Interest (10%) $ - $ (270,000)
Income before income taxes $ 800,000 $ 530,000
Income tax expense (30%) $ (240,000) $ (159,000)
Net income $ 560,000 $ 371,000
Outstanding shares 150000 90000
Earnings per share $ 3.73 $ 4.12
(a) 1-Jan Cash $ 500,000
Bonds Payable $ 500,000
(b) 1-Jul Bonds Interest Expense $ 25,000
Cash $ 25,000
(c) 31-Dec Bonds Interest Expense $ 25,000
Bonds Interest Payable $ 25,000
(a) 1-Jan Cash $ 400,000
Bonds Payable $ 400,000
(b) 1-Jul Bonds Interest Expense $ 18,000
Cash $ 18,000
(c) 31-Dec Bonds Interest Expense $ 18,000
Bonds Interest Payable $ 18,000
(d) 31-Dec Bonds Payable $ 400,000
Cash $ 400,000
(a) 1-Jan Cash $ 1,000,000
Bonds Payable $ 1,000,000
1-Jan Cash $ 980,000
Discount on Bonds Payable $ 20,000
Bonds Payable $ 1,000,000
1-Jan Cash $ 1,030,000
Bonds Payable $ 1,000,000
Premium on Bonds Payable $ 30,000
(b) Bonds Payable $ 1,000,000
Cash $ 1,000,000
(c) Bonds Payable $ 1,000,000
Premium on Bonds Payable $ 9,000
Cash $ 980,000
Gain on Bond Redemption $ 29,000
(d) Bonds Payable $ 1,000,000
Common Stock $ 300,000
Paid-in Capital in Excess of Par Value $ 700,000
(a) (1) 12/31 Cash $ 485,000
Discount on Bonds Payable $ 15,000
Bonds Payable $ 500,000
(2) Bonds Issued at a Discount
Semiannual interest payment $ 200,000
Add: Bonds Discount $ 15,000
Total cost of borrowing $ 215,000

(b) (1) 12/31 Cash $ 525,000

Bonds Payable $ 500,000
Premium on Bonds Payable $ 25,000
(2) Bonds Issued at a Premium
Semiannual interest payment $ 200,000
Less: Bonds Premium $ (25,000)
Total cost of borrowing $ 175,000
(a) 1-Jan Bonds Interest Payable $ 72,000
Cash $ 72,000
(b) 1-Jan Bonds Payable $ 600,000
Loss on Bond Redemption $ 24,000
Cash $ 624,000
(c) 1-Jul Bonds Interest Expense $ 45,000
Cash $ 45,000
(1) 30-Jun Bonds Payable $ 130,000
Loss on Bond Redemption $ 15,100
Discount on Bonds Payable $ 12,500
Cash $ 132,600
(2) 30-Jun Bonds Payable $ 150,000
Premium on Bonds Payable $ 1,000
Cash $ 147,000
Gain on Bond Redemption $ 4,000
(3) 31-Dec Bonds Payable $ 20,000
Common Stock $ 3,000
Paid-in Capital in Excess of Par Value $ 17,000