In May 2017, Apple Inc., filed a prospectus with the SEC, indicating that it wou
ID: 2524169 • Letter: I
Question
In May 2017, Apple Inc., filed a prospectus with the SEC, indicating that it would be issuing another $7 billion in bonds during 2017. (Apple now has almost $100 billion in debt).
With the bond proceeds, Apple will be buying back its own stock and paying large dividends to shareholders.
Please answer questions below. Short answers are okay!
What journal entry would Apple make when it issues $7 billion in bonds (ignore underwriting fees and assume the bonds were issued at par value May 31, 2017)? Please show debits and credits.
How are assets, liabilities, and equity impacted by the bond issuance?
On what financial statement is the balance of bonds payable shown? Where is it shown on that financial statement?
What journal entry would Apple make when it purchases its own stock? Assume Apple bought back 9,000,000 shares for $145 each on June 22, 2017. Please show debits and credits.
How are assets, liabilities, and equity impacted by the stock buyback?
On what financial statement is the balance of treasury stock shown? How is treasury stock shown on that financial statement?
Explanation / Answer
Bonds issue:
This is the issue at par; therefore, the whole money would be reflected as credit of bonds payable; the debit would be cash.
Journal
Date
Account titles & explanation
P.ref
Debit, $
Credit, $
31/05/2017
Cash
7,000,000,000
Bonds payable
7,000,000,000
Bonds issued at par
Impact:
Assets: Cash is an asset. Since there is incoming of cash, total amount of asset would increase.
Liabilities: Bond payable is a liability. It increases; therefore, the total liability increases.
Equity: It has no effect, since bond is not a part of equity.
Financial statement:
The amount of bonds payable is shown on the Balance Sheet.
It is shown in the liability side on the Balance Sheet.
Purchasing own stock:
In this case treasury stock is debit and cash is credit. The amount is ($145 × 9,000,000 shares =) $1,305,000,000.
Journal
Date
Account titles & explanation
P.ref
Debit, $
Credit, $
22/06/2017
Treasury stock
1,305,000,000
Cash
1,305,000,000
To record purchase of 9,000,000 own equity shares at $145 each.
Impact:
Assets: Cash is an asset. Since there is incoming of cash, total amount of asset would increase.
Liabilities: It has no effect, since treasury stock is not a liability.
Equity: It decreases equity, since the amount of treasury stock is subtracted there.
Financial statement:
The amount of treasury stock is shown on the Balance Sheet.
It is shown in the liability side on the Balance Sheet by a deduction from total equity.
Date
Account titles & explanation
P.ref
Debit, $
Credit, $
31/05/2017
Cash
7,000,000,000
Bonds payable
7,000,000,000
Bonds issued at par
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