1) Stocks and Bonds Intel Inc. is the pioneer in the manufacture of microprocessor for computers. The company’s fiscal year runs from April 1 to March 31. On 4/1/2013, Intel Issued $5,000,000 of 11% Bonds due in 10 years. The interest is payable annually on April 1. The market rate of interest on that date for bonds of similar risk is 10% 1. Prepare the journal entry for the issuance of the bonds and on the first interest payment date. 2. Use spreadsheet to prepare an amortization schedule for the bonds. Exercise 2 Presented below is the stockholders equity section of Delta Inc. All amounts are in million except for number of shares and par value Stockholders’ Equity (Deficit) Current Year Prior Year Preferred stock-20,000,000 shares authorized; none issued $ -0- $ -0- Common stock-$1 par value; 750,000,000 shares authorized; 182,350,259 shares issued 182 182 Additional paid-in capital 2,521 2,605 Treasury shares at cost: current year-21,194,312; prior year-22,768,027 (1,308) (1,405) Accumulated other comprehensive loss (664) (785) Accumulated deficit (1,312) (551) $ (581) $ 46 1. Explain why the common stock is classified as part of the stockholder’s equity. 2. Explain why treasury stock is not classified as an asset. 3. Explain what is meant by “Accumulated other comprehensive loss.” 4. Why is the accumulated deficit larger in the current year than in the prior year? 5. Compute book value per share for Delta for the current year. Provide reference in APA format if available. Financial Investments • As auditor for Banquo & Associates, you have been assigned to check Duncan Corporation’s computation of earnings per share for the current year. The controller, Mac Beth, has supplied you with the following computations. Net income $3,374,960 Common shares issued and outstanding: Beginning of year 1,285,000 End of year 1,200,000 Average 1,242,500 Earnings per share: $3,374,960 = $2.72 per share 1,242,500 • You have developed the following additional information. 1. There are no other equity securities in addition to the common shares. 2. There are no options or warrants outstanding to purchase common shares. 3. There are no convertible debt securities. 4. Activity in common shares during the year was as follows. Outstanding, Jan. 1 1,285,000 Treasury shares acquired, Oct. 1 1,035,000 Shares reissued, Dec. 1 1,165,000 Outstanding, Dec. 31 1,200,000 • Required: 1. On the basis of the information above, do you agree with the controller’s computation of earnings per share for the year? If you disagree, prepare a revised computation of earnings per share 2. Assume the same facts as those presented above, except that options had been issued to purchase 140,000 shares of common stock at $10 per share. These options were outstanding at the beginning of the year, and none had been exercised or canceled during the year. The average market price of the common shares during the year was $25, and the ending market price was $35. What earnings per share amounts will be reported? • 1) Income Tax Calculations Johnny Bravo Company began operations in 2012 and has provided the following information. 1. Pretax financial income for 2012 is $100,000. 2. The tax rate enacted for 2012 and future years is 40%. 3. Differences between the 2012 income statement and tax return are listed below. (a) Warranty expense accrued for financial reporting purposes amounts to $5,000. Warranty deductions per the tax return amount to $2,000. (b) Gross profit on construction contracts using the percentage-of-completion method for book purposes amounts to $92,000. Gross profit on construction contracts for tax purposes amounts to $62,000. (c) Depreciation of property, plant, and equipment for financial reporting purposes amounts to $60,000. Depreciation of these assets amounts to $80,000 for the tax return. (d) A $3,500 fine paid for violation of pollution laws was deducted in computing pretax financial income. (e) Interest revenue earned on an investment in tax-exempt municipal bonds amounts to $1,400. 4. Taxable income is expected for the next few years. a. Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2012. b. Draft the income tax expense section of the income statement, beginning with “Income before income taxes”