12. Sorenson Co., is considering the following alternative plans for financing their company: Plan I Plan II Issue 10% Bonds (at face) - $3,000,000 Issue $10 Common Stock $4,000,000 $1,000,000 Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.(Points: 5) Plan 1 $4.00, plan 2 $1.60 Plan 1 $4.00, plan 2 $1.50 Plan 1 $3.00, plan 2 $1.60 Plan 1 $1.50, plan 2 $4.20 13. If bonds are issued at a premium, the stated interest rate is (Points: 5) higher than the market rate of interest. lower than the market rate of interest. too low to attract investors adjusted to a higher rate of interest 14. Blanton Corporation purchased 17% of the outstanding shares of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash dividends. What journal entry would Blanton Corporation use to record the purchase of Worton Corporation common stock? (Points: 5) debit Investment in Worton Corporation; credit Cash debit Cash; credit Dividend Revenue debit Investment in Worton Corporation; credit Income of Worton Corporation debit Cash; credit Investment in Worton Corporation 15. When the corporation issuing the bonds has the right to repurchase the bonds prior to the maturity date for a specific price, the bonds are (Points: 5) convertible bonds unsecured bonds debenture bonds callable bonds 16. The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be (Points: 5) debit Bonds Payable, credit Cash debit Cash and Discount on Bonds Payable, credit Bonds Payable debit Cash, credit Premium on Bonds Payable and Bonds Payable debit Cash, credit Bonds Payable
Hi nifunifa,The answers are:12. Plan 1 $1.50, plan 2 $4.20 13. higher than the market rate of interest. 14. debit Investment in Worton Corporation; credit Cash 15. callable bonds 16. debit Cash and Discount on Bonds Payable, credit Bonds Payable Hope this helps!