Sample content EXERCISE 10-9 Plan One Issue Stock Plan Two Issue Bonds Income before interest and taxes Interest ($2,400,000 X 10%) Income before taxes Income tax expense (30%) Net income Outstanding shares Earnings per share $800,000 — 800,000 240,000 $560,000 150,000 $3.73 $800,000 240,000 560,000 168,000 $392,000 90,000 $4.36 Top of Form Exercise 10-9 Your answer is correct. Global Airlines is considering two alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are: 1. Issue 60,000 shares of common stock at $40 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 10%, 10-year bonds at face value for $2,400,000. It is estimated that the company will earn $800,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 90,000 shares of common stock outstanding prior to the new finan

1. ACC 557 Week 6 Chapter 10 (E10 9 E10 12 E10 15 P10 1A)
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Sample content
EXERCISE 10-9
Plan One
Issue Stock

2. Plan Two
Issue Bonds
Income before interest and taxes
Interest ($2,400,000 X 10%)
Income before taxes
Income tax expense (30%)
Net income
Outstanding shares
Earnings per share
$800,000
—
800,000
240,000
$560,000
150,000
$3.73
$800,000
240,000
560,000

3. 168,000
$392,000
90,000
$4.36
Top of Form
Exercise 10-9
Your answer is correct.
Global Airlines is considering two alternatives for the financing of a purchase of a
fleet of airplanes. These two alternatives are:
1.
Issue 60,000 shares of common stock at $40 per share. (Cash dividends have not
been paid nor is the payment of any contemplated.)
2.
Issue 10%, 10-year bonds at face value for $2,400,000.
It is estimated that the company will earn $800,000 before interest and taxes as a
result of this purchase. The company has an estimated tax rate of 30% and
has 90,000 shares of common stock outstanding prior to the new financing.
Determine the effect on net income and earnings per share for these two methods
of financing. (Round earnings per share to 2 decimal places, e.g. $2.25.)
Plan One Issue Stock
Plan Two Issue Bonds
Net income
$

4. $
Earnings per share
$
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Bottom of Form
EXERCISE 10-12
(a) 1. Cash 294,000
Discount on Bonds Payable 6,000
Bonds Payable 300,000
2. Semiannual interest payments
($12,000* X 10) $120,000
Plus: Bond discount 6,000
Total cost of borrowing $126,000
*($300,000 X .08 X 6/12)
(b) 1. Cash 312,000
Bonds Payable 300,000
Premium on Bonds Payable 12,000
2. Semiannual interest payments

5. ($12,000 X 10) $120,000
Less: Bond Premium 12,000
Total cost of borrowing $108,000
Top of Form
Exercise 10-12
Your answer is correct.
Pueblo Company issued $300,000 of 5-year, 8% bonds at 98 on January 1, 2014.
The bonds pay interest twice a year.
(a) (1) Prepare the journal entry to record the issuance of the bonds. (Credit
account titles are automatically indented when amount is entered. Do not indent
manually.)
Account Titles and Explanation
Debit
Credit
(2) Compute the total cost of borrowing for these bonds.
Total cost of borrowing
$
(b) (1) Prepar
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