Exercise 9-1 Compare financing alternatives (LO1) [The following information app

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Exercise 9-1 Compare financing alternatives (LO1)

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Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $23 million gaming center:

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Section BreakExercise 9-1 Compare financing alternatives (LO1)

1.

value:
2.50 points

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Exercise 9-1 Part 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 not in millions. Round your "Earnings per Share" to 2 decimal places.)

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2.

value:
2.50 points

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Exercise 9-1 Part 2

Issue stock

Issue bonds

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Brief Exercise 9-13 Interpret a bond amortization schedule (LO4)

Record the bond issue and first interest payment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Interest expense increases each period because the carrying value of the debt issued at a discount increases over time.

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Brief ExerciseDifficulty: Easy

Brief Exercise 9-13 Interpret a bond amortization schedule (LO4)Learning Objective: 09-04 Account for the issuance of bonds.

Brief Exercise 9-14 Interpret a bond amortization schedule (LO4)

Record the bond issue and first interest payment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Interest expense decreases each period because the carrying value of the debt issued at a premium decreases over time.

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eBook & Resources

Brief ExerciseDifficulty: Easy

Brief Exercise 9-14 Interpret a bond amortization schedule (LO4)Learning Objective: 09-04 Account for the issuance of bonds.

Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $23 million gaming center:

Explanation / Answer

Alternative 1 ( if finance raised by bond issue) $m (calculation) Operating Income -(Not Given in the question) say X intrest expense: 1.38 (23 * 6%) profit before tax = x-1.38 Tax 0.35x-0.483 {(x-1.38)*35 } Profit after Tax =0.65x-0.897 Earnings per share= Profit after tax/ No of shares data not given --------------------------------------... Alternative 2 ( if finance raised by share issue) $m (calculation) Operating Income X(as not given in question) intrest expense: - - (as no bond issue so no interest payment) profit before tax=x Tax 0.35x (x * 35) Profit after Tax =0.65x (or net profit) Earnings per share= Profit after tax/ No of shares data not given Bond Amortisation Bond issue: Cash 51091 To Bonds payable 51091 Interst expense 1,677 To Bonds payable 1677

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