Intel Inc. is the pioneer in the manufacture of microprocessors for computers. T

Question

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.

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

1. Explain why the common stock is classified as part of the stockholders’ equity.

2. Explain why treasury stock is not classified as an asset.

3. Explain what is meant by "Accumulated other comprehensive loss."

4. Why is the accumulated deficit larger in the current year than in the prior year?

5. 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

Explanation / Answer

Answer: Intel Corporation:

Face Value of Bonds= $5,000,000

Interest Rate = 11%

N =10 Years

Market Interest Rate = 10%

Interest = $5,000,000 * 11% =$550,000

Present Value of Interest at 10% and 10 Years = 6.14457

Therefore P.V of Interest = $550,000 *6.14457 = $3,379,513.5

(+)Present Value of face Value = $5,000,000 * .38554 =$1,927,700

Issue price of the bonds = $5,307,213.5

Journal entry:

Cash A/C Dr. $5,307,213.5

         To Bonds Payable A/c                                $5,000,000

         To Premium on issue of Bonds A/C              $307213.5

Interest expense A/C Dr. $530721.35

Premium on issue of Bonds A/C Dr. $19278.65

       To cash A/C                                                          $550000

Date Payments Interest expense Premium amortised Unamortized Premium Carrying value 2015 307213.5 $5,307,213.50 2016 550000 $530,721.35 $19,278.65 $287,934.85 $5,287,934.85 2017 550000 $528,793.49 $21,206.52 $266,728.34 $5,266,728.34 2018 550000 $526,672.83 $23,327.17 $243,401.17 $5,243,401.17 2019 550000 $524,340.12 $25,659.88 $217,741.29 $5,217,741.29 2020 550000 $521,774.13 $28,225.87 $189,515.41 $5,189,515.41 2021 550000 $518,951.54 $31,048.46 $158,466.96 $5,158,466.96 2022 550000 $515,846.70 $34,153.30 $124,313.65 $5,124,313.65 2023 550000 $512,431.37 $37,568.63 $86,745.02 $5,086,745.02 2024 550000 $508,674.50 $41,325.50 $45,419.52 $5,045,419.52 2025 550000 $504,541.95 $45,458.05 $0.00 $5,000,000.00

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