Assignment:
1. On January 1, 201X, Acorn Corporation issued $600,000 of 10%, 20-year bonds for $509,580, yielding a market rate of 12%. Interest is paid on July 1 and December 31. Acorn uses the interest method to amortize the discount.
Tasks:
a. Prepare an amortization schedule for the first three semiannual periods.
b. Prepare journal entries to record the following:
Bond issue on January 1.
Semiannual interest payments on July 1 and December 31 as well as amortization of discount.
c. If the bond were issued on March 1 and interest was paid on September 1 and March 1, what would be the year-end adjusting entry on December 31, 201X, to record accrued interest and amortization of discount?
2. Open Kellogg's 2010 Annual Report and find note 6 for Debt. What is Kellogg's scheduled repayment of long-term debt in 2010 (in millions)?
Go to the 2010 annual report for Kellogg's Company at http://investor.kelloggs.com/annuals.cfm and find the consolidated balance sheet. What is the cost of treasury stock for Kellogg's in 2010 and 2009?
3. From the following, prepare the long-term liabilities section of a balance sheet:
a. Sinking Fund $275,000
b. Premium on 13% bonds 7,000
c. Discount on 16% bonds 13,000
d. 13% Bonds Payable 600,000
e. 16% Bonds Payable 180,000
4. At the beginning of January 201X, the stockholders' equity of Mountain View Corporation consisted of the following:
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Paid-In Capital:
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Common Stock, $30 par value, authorized 60,000 shares,
15,000 shares issued and outstanding
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$450,000
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Paid-In Capital in Excess of Par Value-Common
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80,000
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Paid-In Capital by Common
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Stockholders
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$530,000
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Retained Earnings
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170,000
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Total Stockholders' Equity
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$700,000
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Figure 8
Tasks:
a. Record the transactions in general journal form.
b. Prepare the stockholders' equity section at year-end using the Blueprint as a guide.
c. Prepare a statement of retained earnings at December 31, 201X.
Accounts are provided in the working papers that accompany this text. Be sure to put in the beginning balances.
201X
June 5 Mountain View Corporation purchased 1,000 shares of treasury stock at $34.
June 25 The board of directors voted a $0.20 per share cash dividend payable on July 20 to stockholders of record on July 4.
July 20 Cash dividend declared on June 25 is paid.
Sept. 10 Sold 300 shares of the treasury stock at $43 per share.
Sept. 30 Sold 700 shares of the treasury stock at $33 per share.
Oct. 15 The board of directors declared a 10% stock dividend distributable on January 2 to stockholders of record on November 2. The market value of the stock is currently $50 per share.
Dec. 31 Closed the net income of $70,000 in the Income Summary account to Retained Earnings.
5. BUCKING TRADITION
"A convenience store?" asked Stan, incredulous. "Yep, a convenience store," replied Carrie Zabrinsky, "or, as they say in the business, a c-store." Stan had arranged a meeting with his Subway development agent, Carrie, to discuss expansion of his Subway franchise to another location. His future partner, Ron, was almost through with his training program at Subway University, and Stan had just promoted his Sandwich Artist, Rashid, to manager. By leaving a lot of the day-to-day operations in Rashid's hands, Stan planned to help Ron open the new Subway. Everything seemed to be going according to plan, yet he hadn't bargained on the new location being in a Pitt's Stop convenience store!
"Stan, just hear me out," Carrie insisted. "That site you have your eye on is extremely expensive. Also, with nothing around it but that new luxury apartment complex and some very upscale shops, it won't generate the foot traffic you need. This c-store, however, is in a prime high-traffic location." "But the square footage is so small," Stan protested, pointing to the floor plan in front of him.
"Listen, Stan, in the fast-food industry, Subway leads the pack in opening nontraditional units. We have more than 3,700 Subway restaurants in c-stores, airports, gas stations, schools, grocery stores, and even in hospitals. Headquarters wouldn't encourage these arrangements if they weren't highly lucrative. Sure, these smaller units typically generate less revenue than a full-size restaurant, but they're also cheaper to build and maintain. Look at the figures: Opening in a c-store typically costs as little as $30,000 to develop, while the traditional venue is more like $66,000."
"And you've got a captive audience, I guess," admitted Stan, "particularly in hospitals and schools. What I would've given to eat a sweet onion chicken teriyaki sandwich instead of that stuff that passed for food in high school!"
"Now you're getting the picture," Carrie smiled. "Just imagine. You go into the c-store at 10:00 P.M. to buy a quart of milk or some batteries and then you smell fresh-baked gourmet bread. Your stomach growls and you buy a Subway 6-inch."
"Okay, okay," Stan said. "Once I get some figures for the lease and find out more about this Pitt's Stop's business and its management, I'll run it by Ron. I'm not sure it is what he had in mind when he quit his job to own a Subway."
"Well, he had profits in mind, didn't he?" asked Carrie.
Tasks
a. How might opening a Subway in a convenience store reduce expenses?
b. How might this arrangement increase sales? Suppose you're Stan's development agent and you want him to open a Subway in a gas station. How would you sell him on this arrangement?
c. Like all corporations, Subway's goal is to increase earnings per share. How does expansion into nontraditional sites help achieve this goal?