The IlaK Linen Service Corp. (the "Company") uses the calendar year for financial accounting purposes. During the month of December, 2010, the following events in the life of the Company took place:
December 1 The Company entered into a one year linen supply contract with a customer, calling for linen supply on a monthly basis, beginning on December 1, 2010. The annual fee under this contract was $12,000. Payment of the annual fee is to be made in four quarterly installments of $3,000 at the end of February, May, August and November of 2011.
December 2 The Company ordered new linens at a cost of $16,500. A down-payment of $3,500 was made with the order. The remainder of the purchase price is to be paid when the linens are delivered. The expected date of delivery is January 5, 2011.
December 10 The Company entered into a two-year linen supply contract with another new customer with service to commence on January 1, 2011. The contract required the customer to pay $7,000 per month over the two-year period. Each monthly payment was due in advance on the first of the month. The first delivery was to be made on January 1, 2011, and the first $7,000 monthly payment is due on January 1, 2011.
December 15 One of the Company’s customers, who owed the Company $10,000 since November 30, 2010, informed the Company it would be unable to pay in a timely manner. This customer issued to the Company a note requiring the payment of $10,000 plus 12% interest. The $11,200 was due and payable on November 30, 2011.
December 20 The Company's Board of Directors met and declared a cash dividend of 60 cents a share for the fourth quarter of 2010. Since the Company had outstanding 50,000 shares of common stock, the dividend the Company announced totaled $30,000. (Assume the Company's earned surplus was in excess of $30,000 so that this declared dividend would be permitted under state law.) The dividend checks would be dated and mailed out on January 15, 2011. Explain the impact, if any, of the above-described December transactions on the Company's year-end balance sheet and income statement.
In other words, how should these transactions be accounted for in the Company's financial statements on December 31, 2010? Please attach excel sheet for BS and IS. Thanks.
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On January 1, 1987, the X corporation issued a $1,000,000, 30-year bond paying annual interest of $70,000. Each $70,000 interest coupon is redeemable on December 31. And, the bond matures on December 31, 2017. At the time X Corporation issued the bond, prevailing market rates were slightly higher than the 7% yield offered on the face amount of the bond. Therefore, the corporation only received $930,000 in cash when it issued this $1,000,000 bond.
(i) Discuss the financial consequences to X Corporation upon the issuance of the bond at a discount, the time the bond is outstanding, and the retirement of the bond at maturity for $1,000,000. Specifically, how should X Corporation report the issuance of the bond at a discount, its annual interest expense on the bond, and retirement of the bond at maturity on December 31, 2017.
(ii) On January 1, 2011, market rates of interest were 4%, and this bond was valued at a premium at $1,180,063. X Corporation decided to retire this bond at this time (7 years before its maturity). Therefore, on January 1, 2011, X Corporation purchased the bond from the bondholder, paying $1,180,063 to the bond holder. Since X Corporation was now both the obligor and the obligee of the bond, the doctrine of merger applied and X Corporation's liability was extinguished. How is the repurchase of its own debt obligation reported by X Corporation? In other words, what are the financial consequences to X Corporation when it retires its bond in this manner?
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