Question

On the last day of its fiscal year ending December 31, 2018, the Sedgwick & Reams (S&R) Glass Company completed two financing arrangements. The funds provided by these initiatives will allow the company to expand its operations. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. S&R issued 6% stated rate bonds with a face amount of $110 million. The bonds mature on December 31, 2036 (20 years). The market rate of interest for similar bond issues was 7% (3.5% semiannual rate). Interest is paid semiannually (3.0%) on June 30 and December 31, beginning on June 30, 2019. 2. The company leased two manufacturing facilities. Lease A requires 20 annual lease payments of $370,000 beginning on January 1, 2019. Lease B also is for 20 years, beginning January 1, 2019. Terms of the lease require 17 annual lease payments of $390,000 beginning on January 1, 2022. Generally accepted accounting principles require both leases to be recorded as liabilities for the present value of the scheduled payments. Assume that an 8% interest rate properly reflects the time value of money for the lease obligations. Required: What amounts will appear in S&R's December 31, 2018, balance sheet for the bonds and for the leases? (Enter your answers in whole dollars. Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)

Answer 1

Face value of bond	110,000,000
Interest paid per semiannually (face value of bond *3%)	3,300,000
Number of period (20 years *2)	40.00
Discount rate	3.50%
Payment at end of 20 year with interest	113,300,000

Bond payable	98,254,710
Lease payable – A	3,923,332
Lease payable – B	3,049,930
Amount appear in balance sheet of Dec 31, 2018	105,227,972

Period	Payment	Discount factor @ 3.5%	Present value
1	3,300,000	0.966184	3,188,406
2	3,300,000	0.933511	3,080,585
3	3,300,000	0.901943	2,976,411
4	3,300,000	0.871442	2,875,759
5	3,300,000	0.841973	2,778,511
6	3,300,000	0.813501	2,684,552
7	3,300,000	0.785991	2,593,770
8	3,300,000	0.759412	2,506,058
9	3,300,000	0.733731	2,421,312
10	3,300,000	0.708919	2,339,432
11	3,300,000	0.684946	2,260,321
12	3,300,000	0.661783	2,183,885
13	3,300,000	0.639404	2,110,034
14	3,300,000	0.617782	2,038,680
15	3,300,000	0.596891	1,969,739
16	3,300,000	0.576706	1,903,130
17	3,300,000	0.557204	1,838,772
18	3,300,000	0.538361	1,776,592
19	3,300,000	0.520156	1,716,514
20	3,300,000	0.502566	1,658,467
21	3,300,000	0.485571	1,602,384
22	3,300,000	0.469151	1,548,197
23	3,300,000	0.453286	1,495,843
24	3,300,000	0.437957	1,445,259
25	3,300,000	0.423147	1,396,385
26	3,300,000	0.408838	1,349,164
27	3,300,000	0.395012	1,303,540
28	3,300,000	0.381654	1,259,459
29	3,300,000	0.368748	1,216,869
30	3,300,000	0.356278	1,175,719
31	3,300,000	0.344230	1,135,960
32	3,300,000	0.332590	1,097,546
33	3,300,000	0.321343	1,060,431
34	3,300,000	0.310476	1,024,571
35	3,300,000	0.299977	989,924
36	3,300,000	0.289833	956,448
37	3,300,000	0.280032	924,104
38	3,300,000	0.270562	892,854
39	3,300,000	0.261413	862,661
40	113,300,000	0.252572	28,616,461
	Present value of bond		98,254,710

At beginning of year	Lease payment	Discount factor @8%	Present value
2019	370000	1.000000	370000
2020	370000	0.925926	342593
2021	370000	0.857339	317215
2022	370000	0.793832	293718
2023	370000	0.735030	271961
2024	370000	0.680583	251816
2025	370000	0.630170	233163
2026	370000	0.583490	215891
2027	370000	0.540269	199899
2028	370000	0.500249	185092
2029	370000	0.463193	171382
2030	370000	0.428883	158687
2031	370000	0.397114	146932
2032	370000	0.367698	136048
2033	370000	0.340461	125971
2034	370000	0.315242	116639
2035	370000	0.291890	107999
2036	370000	0.270269	100000
2037	370000	0.250249	92592
2038	370000	0.231712	85733
	Present value of lease A		3923332

At beginning of year	Lease payment	Discount factor @8%	Present value
2019		1.000000	0
2020		0.925926	0
2021		0.857339	0
2022	390000	0.793832	309595
2023	390000	0.735030	286662
2024	390000	0.680583	265427
2025	390000	0.630170	245766
2026	390000	0.583490	227561
2027	390000	0.540269	210705
2028	390000	0.500249	195097
2029	390000	0.463193	180645
2030	390000	0.428883	167264
2031	390000	0.397114	154874
2032	390000	0.367698	143402
2033	390000	0.340461	132780
2034	390000	0.315242	122944
2035	390000	0.291890	113837
2036	390000	0.270269	105405
2037	390000	0.250249	97597
2038	390000	0.231712	90368
	Present value of lease B		3049930