PLEASE TRANSFER ALL YOUR ANSWERS TO THE ANSWER SHEET.
Ten |Total | |Exam
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Part One: (15 points)
On December 31, 2006, Poore Co. is in financial difficulty and cannot pay a note due that day. It is a $500,000 note with $50,000 accrued interest payable to Edsen, Inc. Edsen agrees to forgive the accrued interest, extend the maturity date to December 31, 2008, and reduce the interest rate to 4%. The present value of the restructured cash flows is $428,000.
Prepare entries for the following:
The restructure on Poore's books. (5 points)
The payment of interest on December 31, 2007. (5 points) (c)
The restructure on Edsen’s books. (5 points)
Part Tow: (20 points)
Logan Corporation issued $800,000 of 8% bonds on October 1, 2006, due on October 1, 2011. The interest is to be paid twice a year on April 1 and October 1. The bonds were sold to yield 10% effective annual interest. Logan Corporation closes its books annually on December 31.
Complete the following amortization schedule for the dates indicated. (Round all answers to the nearest dollar.) Use the effective-interest method. (10 points) Debit Credit Carrying Amount
Credit Cash Interest Expense Bond Discount
of Bonds October 1, 2006
April 1, 2007
October 1, 2007
Prepare the adjusting entry for December 31, 2007. Use the effective-interest method. (5 points) (c)
Compute the interest expense to be reported in the income statement for the year ended December 31, 2007. (5 points)
Part Three: (30 points)
Described below are certain transactions of Carson Company for 2007:
On May 10, the company purchased goods from Jay Company for $50,000, terms...
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