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Intel Inc. is the pioneer in the manufacture of microprocessors for computers. The company’s fiscal year runs from April 1 to March 31. On 4/1/2015, 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%.
Prepare the journal entry for the issuance of the bonds and on the first interest payment date.
Use the Excel Template linked at the bottom of this page to prepare an amortization schedule for the bonds. Any written comments should be included in Excel’s comments function and formatted according to CSU-Global Guide to Writing and APA Requirements.
Stocks
Presented below is the stockholders’ equity section of AMR Corporation. All amounts are in millions except for number of shares and par value.
Explain why the common stock is classified as part of the stockholders’ equity.
Explain why treasury stock is not classified as an asset.
Explain what is meant by “Accumulated other comprehensive loss.”
Why is the accumulated deficit larger in the current year than in the prior year?
Compute book value per share for AMR for the current year.
| 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 | |
Expert Answer
1. Journal Entries
| Date | Particulars | LF | Dr Amount | Cr Amount |
|---|---|---|---|---|
| 4/1/2015 | Cash a/c Dr | $5,000,000 | ||
| To 11% Bonds a/c | $5,000,000 | |||
| 3/31/2016 | Interest a/c Dr | $550,000 | ||
| To Interest Payable a/c | $550,000 | |||
| 4/1/2016 | Interest Payable a/c Dr | $550,000 | ||
| To Cash a/c | $550,000 | |||
2. The common stock represents the ownershoip interest. It is a share of the whole ownership capital of the company. On a company’s balance sheet the amount which is contributed by the owners is termed as Share Capital. The common stock is the share issued to the public for subscription. This subscription allows a person to become owner of the company for the proportion of the interest which is represented by the stock. The Shareholder’s Equity in the balance sheet represents the whole amount belongng to the owners and therefore the Common Stock is represented as Shareholder’s Equity.
3. Treasury Stock is also known as the reaquired stock of the company. The company can buy back its own shares from the shareholders. When the stocks are bought back by the company they reduce the number of shares issued to the public or shareholders and thereby the liability of the company towards the shareholders also reduced effectively. Treasury Stock is not classified as asset because it is part of the share capital which is paid off and can be reissued again when required. An asset is an item which holds value for the company and helps in the revenue generation process. Treasury Stock represents the portion of the liability paid off.
4. Accumulated other comprehensive loss represents the unrealized loss of the line items which are represented in the income statement as other comprehensive income. It represents the loss from the income which is not operative in nature or the income which is not generated by the routine operaton of business of the company.
