Question

Answer each separate question please

1) On each interest payment date, Company XYZ mails a check to the bondholders for Interest.  How is this cash payment calculated?  

2) Zack’s House Builders issues bonds to raise capital. The last $100,000 of bonds were issued at a discount.  How is the interest payment, interest expense and carrying value shown on the bond amortization schedule?

3) Whataburger Franchise wants to improve its Debt to Equity ratio, so it decides to retire a $24 million bond issue.  At the time of retirement, the market value of the bonds was $33 million and the carrying value of the bonds is $32 million.  Which of the following would be included in the journal entry to record the retirement of the bonds?

4) Information from the financial statements of Texans Corp, reveals that stockholders' equity is $600,000, total liabilities are $600,000, and total assets are $1,200,000. Using this information, calculate the company's debt to equity ratio.

5) Beatles Enterprises is in the process of preparing a Cash Slow Statement. Beatles analyzed the financial statements and additional information.  Based on the statements and the additional information which transaction below would notcreate a cash flow?

Answer 1

1) Bonds sold at discount, Interest expense will include amortised discount. So, in cash payment amortised discount will be deducted from Interest Expense.

Bonds sold at premium, Interest expense will include amortisation premium. So, in cash payment amortised premium will de added in Interest Expense.

Bonds at Face Value, Interest expenses will be Cash payment.

2)

Bond Amortisation Schedule
Future Value	=	$        1,00,000.00
Number of periods	=	10	(5 years of semiannual payment)
Payment	=	$              5,000.00
yield to maturity	=	6%
Assume number period be 5years of half yearly payment, payment also be half yearly, yield to maturity 12% yearly
Present value of bond	=	$           92,639.91	( 100,000 discounted at 5% for 10 number)
Interest expense for 1st period	=	$           92,639.91	*	6%
	=	$              5,558.39
Actual Cash payment	=	$              5,000.00
Amortised discount	=	$              5,558.40	-	$                  5,000.00
	=	$                 558.40
Discount Amortisation
Time	Cash Interest	Interest Expense	Amortisation	Carrying amount
(a)	(b)	(c )= ( e ) of previous period * 6%	(d) = ( c) - (b)	(e ) = opening + ( d)
0	-	-	-	$               92,639.91
1	$          5,000.00	$              5,558.40	$                 558.40	$               93,198.31
2	$          5,000.00	$              5,591.90	$                 591.90	$               93,790.20
3	$          5,000.00	$              5,627.41	$                 627.41	$               94,417.62
4	$          5,000.00	$              5,665.06	$                 665.06	$               95,082.67
5	$          5,000.00	$              5,704.96	$                 704.96	$               95,787.63
6	$          5,000.00	$              5,747.26	$                 747.26	$               96,534.89
7	$          5,000.00	$              5,792.09	$                 792.09	$               97,326.98
8	$          5,000.00	$              5,839.62	$                 839.62	$               98,166.60
9	$          5,000.00	$              5,890.00	$                 890.00	$               99,056.60
10	$          5,000.00	$              5,943.40	$                 943.40	$            1,00,000.00

3) Company retire a $24 million bond issue. At the retirement time, carrying value of bonds is $32Million. While calculating debt equity ratio, carrying value of bond will be taken in calculation. Therefore, $32Million would be included in the journal entry to record the retirement of the bonds.

4) Stock holders Equity = $600,000

Total Liabilities = $600,000

Total Assets = $1,200,000

Company's debt equity ratio = Total liabilities / Stockholders’ equity

= $600,000 /  $600,000

= 1

Ratio 1 indicated that creditors and stockholders holding equal contribution in the Company.