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Debt Restructuring Transaction

1. On June 30, 1999, Counting Crows Company issued 12% bonds with a par value of $800,000 due in 20 years.
They were issued at 98 and were callable at 104 at any date after June 30, 2007. Because of lower interest rates and a significant change in the company's credit rating, it was decided to call the entire issue on June 30, 2008, and to issue new bonds. New 10% bonds were sold in the amount of $1,000,000 at 102; they mature in 20 years. Counting Crows Company uses straight-line amortization. Interest payment dates are December 31 and June 30. Prepare journal entries

2. The employee profit-sharing plan requires that 20% of all profits remaining after the deduction of the bonus and income taxes be distributed to the employees by the first day of the fourth month following each year-end. The federal income tax is 45%, and the bonus is tax-deductible.

3. Morgan Sondgeroth Inc. began operations in January 2005 and reported the following results for each of its 3 years of operations. (2005, $260,000 net loss) ; (2006, $40,000 net loss) ; (2007, $800,000 net income)

At December 31, 2007, Morgan Sondgeroth Inc. capital accounts were as follows.
8% cumulative preferred stock, par value $100; authorized, issued, and outstanding 5,000 shares. $500,000 Common stock, par value $1.00; authorized 1,000,000 shares; issued and outstanding 750,000 shares $750,000. Morgan Sondgeroth Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since Sondgeroth began operations. The state law permits dividends only from retained earnings.

(a) Compute the book value of the common stock at December 31, 2007.

(b) Compute the book value of the common stock at December 31, 2007, assuming that the preferred stock has a liquidating value of $106 per share.


Solution Summary

The solution journalize Bradtke's debt restructuring transaction to Firstar Bank including interest, The employee profit-sharing plan,