Question

A corporation has the following stockholders' equity accounts at the end of the current fiscal year, after all closing entries have been posted: Common Stock, $10 par, $2,000,000; Paid-In Capital in 8. cess of Par Common Stock, $375,000; Paid-In Capital from Treasury Stock, $18,000; Retained Earnings, $1.285,000. The earnings for the current year, during which there were no un were $350,000. (a) (b) Compute the earnings per share of common stock. Assuming that the market price of the common stock at the end of the current fiscal year was $63, compute the price-earnings ratio. 9. Based on the following information for Company A and Company B: Company Company Market price per share Earnings per share Dividends per share Investor's cost per share $60.00 10.00 3.00 40.00 $80.00 4.00 10 50.00 (a) Calculate the price-earnings ratio for each company (b) Assume that Company A and B are in the same industry. Which one is expected to have the greater growth and the more improved earnings? Why? Prepare the journal entry to issue $300,000 bonds which sold for $294,000. Prepare the journal entry to issue $300,000 bonds which sold for $303,000. 10. (a) (b) On the first day of the current fiscal year, $3,000,000 of 10-year, 9% bonds, with interest payable annually, were sold for $3,100,000. Present entries to record the following transactions for the current fiscal year: (a) Issuance of the bonds. (b) First annual interest payment. (o) Amortization of bond premium for year, using the straight-line method of 11. amortization. 12. On January 1, 2016, Belden, Inc. issued long-term notes payable for $50,000. The note will be paid over 10 years with payments of S5,000 plus 12% interest due each January 1, beginning January 1, 2017. The amortization schedule for the first three payments is provided. Prepare the journal entry for the issuance of the note and for the January 1,2018 note payment. Beginning Principal Interest Total Ending Balance Payment Expense Payment Balance $50,000 01/01/2017| $50,000 ss,000 $6,000 $11,00 45,000 1/01/201845,000 5,0005,400 10,400 40,000 01/01/201940,000 5,000 ,800 9,800 35,000 101,201 0,00 $.00 56008 51,005 $5.00

Answer 1

8.

a.

Earnings per share

1.75

Working:

Earnings for the year	350000
Number of common stock shares	200000
(2,000,000 / 10)
Earnings per share	1.75

b.

Price-earnings ratio (63 / 1.75)

36

9.

a.

Price earnings ratio	6	20
b.
From the above we can say that , company B will have a
higher growth and more imrpoved earnings, as the
price ernings ratio is indicating that the market is
expecting improed performance from the company .
Also the Earnings per share and dividend per share of
company B are less, which indicates that the company is
being conservative in paying out dividends and is planning
to reinvesting the earnings in the company. This fact is also
corraborated by the fact of high price earnings ratio.

10.

a. Issue fo $300,000 bonds for $294,000
Account Title	Debit	Credit
Cash	294000
Discount on bond issue	6000
Bonds payable		300000
b.. Issue fo $300,000 bonds for $303,000
Account Title	Debit	Credit
Cash	303000
Premium on bond issue		3000
Bonds payable		300000

11.

a. Issue fo $3,000,000 bonds for $3,100,000
Date	Account Title	Debit	Credit
Jan.1, CY	Cash	3100000
	Premium on bond issue		100000
	Bonds payable		3000000
b. First annual interest payment
Date	Account Title	Debit	Credit
Dec.31, CY	Interest Expense	27000
	Cash		27000
c. Amortization of premium for the year
Date	Account Title	Debit	Credit
Dec.31, CY	Premium on bond issue	10000
	Interest Expense		10000

12.

a. Issue of note payable on Jan.1, 2016
Date	Account Title	Debit	Credit
Jan.1, 2016	Cash	50000
	Note payable		50000
b. To record note payment on Jan.1, 2018
Date	Account Title	Debit	Credit
Jan.1,2018	Note payable	5000
	Interest Expense	5400
	Cash		10400