velue: 2.50 points Exercise 9-1 Part 1 Required: 1. Assuming bonds or shares of

Question

velue: 2.50 points Exercise 9-1 Part 1 Required: 1. Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answers in dollars Earnings per Share" to 2 decimal places.) each altermative. (Enter your answers in dollars not in millions, Round Operating income Interest expense (bonds only) Income before ta Income tax expense (35%) Net income Number of shares Eamings per share $ 10,400,000 10,400,000 Required Information Exercise 9-1 Compare financing alternatives LO1) The following Information applies to the questions displayed below 3,400,000 4,400,000 Penny Arcades, Ine, is trying to decide between the blowing two ahemanes ew $29 milion gaming center finance ·issue $29 millon of 7% bonds at face amont s issue t mition sheres of common shocxk tor $29 per shene

Explanation / Answer

Exercise 9.1 part 1

Part 2.

Issue of bonds give higher earnings per share

Exercise 9-13

As no information is provided on the face value of bonds we assume it 47040 and its life of 2 years

Journal entries

1. On bond issue

Debit. Credit

Cash. 46875

Discount on bonds payable 165

Bonds payable. 47040

2. On first installment payment

Interest expense. 1406

Cash 1325

Discount on bonds payable. 81

Bond issue stock issue Operating income 10400000 10400000 Interest expenses 2030000 0 Income before tax 8370000 10400000 Income tax expense(35%) 2929500 3640000 Net income 5440500 6760000 No. Of shares 3400000 4400000 Earnings per share 1.60 1.54

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