Question

Accounting for Bonds Sold at a Discount.

The Biltmore National Bank raised capital through the sale of

$150 million face value of eight percent coupon rate, ten-year bonds. The bonds paid interest semiannually

and were sold at a time when equivalent risk-rated bonds carried a yield rate of ten percent.

Calculate the proceeds that The Biltmore National Bank received from the sale of the eight percent bonds.

How will the bonds be disclosed on Biltmore’s balance sheet immediately following the sale? Calculate the

interest expense on the bonds for the first year that the bonds are outstanding. Calculate the book value of the bonds at the end of the first year.

Answer 1

Accounting for Bonds Sold at a DiscountThe Biltmore National Bank raised capital through the sale of $100 million face value of 8% coupon rate,10-year bonds.The bonds paid interest semiannually and were sold at a time when equivalent risk-rated bonds carried ayield rate of 10%.Calculate the proceeds that The Biltmore National Bank received from the sale of the 8% bonds.Use Excel or a financial calculator for your computations. Round your answers to the nearest dollar.How will the bonds be disclosed on Biltmoreâs balance sheet immediately following the sale?Round your answers to the nearest dollar.Balance sheet disclosure (following sale):Bonds payableLess: Bonds discount (enter as negative)Bonds payable(net)Calculate the interest expense on the bonds for the first year that the bonds are outstanding.Do not round until final answer. Round answers to the nearest dollar.First six monthsSecond six monthsCalculate the book value of the bonds at the end of the first year.Do not round until final answer. Round answer to the nearest dollar.$AnswerAccounting for Notes Issues at a PremiumThe Longo Corporation issued $50 million maturity value of 8 percent coupon rate notes, with interestpaid semiannually.At the time of the note issuance, equivalent risk-rated debt instruments carried a yield rate of 6 percent.The notes matured in 5 years.Calculate the proceeds that the Longo Corporation would receive from the sale of the notes.Use Excel or a financial calculator for your computations. Round your answers to the nearest dollar.How will the notes be reported on Longoâs balance sheet immediately following the sale?Round your answers to the nearest dollar.Bonds payablePlus: Bond PremiumBook ValueCalculate the interest expense on the notes for the first year.Do not round until final answer. Round answers to the nearest dollar.First six monthsSecond six monthsCalculate the book value of the notes at the end of the first year.Do not round until final answer. Round answer to the nearest dollar.Retiring Debt EarlySmith & Company issued $80 million maturity value of 5-year bonds, which carried a coupon rate of 6%and paid interest semiannually.At the time of the offering, the yield rate for equivalent risk-rated securities was 8%.Two years later, market yield rates had risen to 10%, and since the company no longer needed the debtfinancing, executives at Smith & Company decided to retire the debt.Calculate the gain or loss that Smith & Company will incur as a consequence of retiring the debt early.Use Excel or a financial calculator for your computations. Do not round until your final answer. Roundyour answer to the nearest dollar.If it is a loss, enter as a negative.Is the early retirement of the debt a good decision if Smith & Company does not need the financing?AnswerDebt RetirementMTF Inc. is a manufacturer of electronic components for facsimile equipment.The company financed the expansion of its production facilities by issuing $100 million of 10-year bondscarrying a coupon rate of 8% with interest payable annually on December 31.The bonds had been issued on January 1. At the time of the issuance, the market rate of interest onsimilar risk-rated instruments was 6%.Two years later, the market rate of interest on comparable debt instruments had climbed to 12%. TheCEO of MTF realized that this might be an opportune time to repurchase the bonds, particularly becausean unexpected surplus of cash made the outstanding debt no longer necessary.Required1. Calculate the proceeds received by the company when the debt was initially sold.Use Excel or a financial calculator for your computations. Round your answer to the nearest dollar.2. Calculate the interest expense for each of the two years that the bonds were outstanding.Do not round until final answer. Round answers to the nearest dollar.Year 1Year 23. Calculate the amount of cash needed to retire the debt after 2 years assuming a market yield rate of12%.Use Excel or a financial calculator for your Round your answer to the nearest dollar.Calculate the amount of the gain or (loss) that would result from early retirement of the debt.Do not round until final answer. Round answers to the nearest dollar.Where will the cash flow from the retirement of the bonds be reported on the companyâs statement ofcash flows?AnswerCapitalizing Operating LeasesMcDonaldâs Corp. was the lessee at 14,139 restaurant locations through ground leases at December 31,2011. The lease terms are generally for 20 years.The company is also the lessee under noncancelable leases covering certain offices and vehicles. Thecompanyâs footnotes also revealed that at year-end 2011, the minimum lease commitments undernoncancelable operating leases were:In millionsRestaurant Other Total2012$1,172.6$74.4 $1,247.020131,104.862.81,167.620141,019.5055.41,074.92015921.943.1965.02016813.937.9851.86,039.1208.8 6,247.9ThereafterTotal minimum payments$11,071.8 $482.4 $11,554.2The following represents a condensed balance sheet for McDonald’s for 2011:MCDONALD’S CORPORATIONConsolidated Balance Sheet($ millions)2011AssetsCurrent AssetsNoncurrent AssetsTotal assets$4,403.028,586.9$32,989.9Liabilities and Shareholders’ equityCurrent liabilities$3,509.2MCDONALD’S CORPORATIONConsolidated Balance Sheet($ millions)2011Long-term debt12,133.8Other noncurrent liabilities2,956.7Shareholders’ equityTotal liabilities and Shareholders’ equity14,390.2$32,989.9Required1. Calculate the present value of the company’s operating leases assuming an interest rate of 6%.Hint – Assume any "thereafter" amount is straight-lined over the remaining lease period using the 5thyear (2016) lease payment, with the final year amount as a plug figure to reconcile to the total futureminimum lease payments. Use Excel or a financial calculator for your computations. Do not round untilyour final answer. Round your answer to the nearest million dollars.million2. Restate the company’s balance sheet assuming that all operating leases are capitalized.Use Excel or a financial calculator for your computations. Do not round until your final answer for eachaccount balance. Round your answers to the nearest million dollars.MCDONALD’S CORPORATIONConsolidated Balance Sheet($ millions)Assets2011MCDONALD’S CORPORATIONConsolidated Balance Sheet($ millions)2011Current AssetsNoncurrent AssetsTotal assetsLiabilities and Shareholders’ equityCurrent liabilitiesLong-term debtOther noncurrent liabilitiesShareholders’ equityTotal liabilities and Shareholders’ equity3. Calculate the:(a) Long-term debt to shareholders’ equity ratio, both with and without capitalization of operatingleases.For your calculations, use the amounts as they appear in the above balance sheets. Answer in a percentrounded to one decimal place. Hint: To calculate ratio, use long-term debt amount only (do not includecurrent portion).(a) With operating lease capitalization%(b) Without operating lease capitalization%(b) Total debt to total assets ratio, both with and without the capitalization of the operating leases.For your calculations, use the amounts as they appear in the above balance sheets. Answer in a percentrounded to one decimal place.(a) With operating lease capitalization%(b) Without operating lease capitalization%Accounting for Stock Dividends and Stock SplitsThe Irvine Corporation reported the following data at year-end:Common stock, par value $1 $100,000Additional paid-in-capital300,000Retained earnings1,400,000Treasury shares(600,000)Other comprehensive incomeTotal shareholdersâ equity200,000$1,400,000The following transactions occurred during the year in the following sequence:1. Declared and distributed a 10% stock dividend on the outstanding common shares at a timewhen the common shares were selling for $15 per share.2. Declared a 3-for-2 forward stock split on the outstanding common shares.3. Declared and issued a 20% stock dividend on the outstanding common shares at a time whenthe shares were selling for $30 per share.4. Declared a 2-for-1 forward stock split on the outstanding common shares.Calculate the par value per share and number of shares outstanding at year-end. Prepare theshareholdersâ equity section of the balance sheet for the Irvine Corporation at year-end.Do not round until your final answers.Par value per share at year end. Round to two decimal places.$AnswerNumber of shares outstanding at year end. Round to nearest whole number.AnswerDo not use rounded answers in your calculations. Enter all answers in the nearest whole number.The Irvine CorporationShareholdersâ EquityYear EndCommon stock, par valueAdditional paid-in-capitalRetained earnings$AnswerAnswerAnswerThe Irvine CorporationShareholdersâ EquityYear EndTreasury stockAnswerAnswerOther comprehensive incomeTotal shareholdersâ equityAccounting for Share TransactionsAt the beginning of the year, The Mann Corporation, a private entity, decided to go public.A charter of incorporation was constructed which authorized the sale of 10 million shares of $1 par valuecommon stock, 100,000 shares of $100 par value, 8% preferred stock, and 200,000 shares of $5 no-parvalue convertible preferred stock.The following shares were sold as part of the firmâs initial public offering:⢠1,000,000 shares of common stock at $10 per share.⢠100,000 shares of $100 par value, 8% preferred stock at $105 per share.⢠100,000 shares of $5 convertible, no-par preferred stock at $55 per share.At year-end, the full dividend was declared and paid on both preferred stock offerings.RequiredUsing a spreadsheet, record the financial effects of the shareholdersâ equity transactions for The MannCorporation for the year. Enter amounts in thousands.The Mann CorporationTransaction (inthousands)CommonShares IPONo-par8% Preferred No-par8% Preferred PreferredIPOPreferred IPO DividendDividendBalanceSheetTotalsAssets$Answer$Answer$Answer$Answer$Answer$AnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerAnswerCashShareholdersâ EquityCommon StockAPIC â Common$100 Preferred StockAPIC-Preferred$5 Conv. PreferredRetained EarningsThe Mann CorporationTransaction (inthousands)CommonShares IPONo-par8% Preferred No-par8% Preferred PreferredIPOPreferred IPO DividendDividendTotal Shareholdersâ EquityAccounting for Share TransactionsThe shareholdersâ equity section of the consolidated balance sheet of CompX Internationalappeared as follows at the beginning of the year:Shareholdersâ EquityClass A common stock, $0.01 par value; 20,000,000 shares authorized;6,100,000 shares issued$61,000Additional paid-in-capital118,127,000Retained earnings14,270,000Currency translation adjustmentTotal equity(2,412,000)$130,046,000BalanceSheetTotalsThe Mann CorporationCommonShares IPOTransaction (inthousands)No-par8% Preferred No-par8% Preferred PreferredIPOPreferred IPO DividendDividendThe following events occurred sequentially during the year:1. A 2-for-1 forward stock split was executed.2. A ten percent stock dividend was distributed when the CompX share price was $20per share.3. Treasury stock valued at $3,000,000 was repurchased when the CompX share pricewas $15 per share.Required1. How many Class A common shares are outstanding following the above events?Answer2. What is the par value per share of the Class A common stock following the above events?Round to the nearest three decimal places.$Answer3. Prepare a spreadsheet to illustrate the financial effects associated with the above threeshare transactions. Round answers to nearest whole number.CompX InternationalTransactionAssetsStockSplitStockDividendShareRepurchaseBalanceSheetTotalsBalanceSheetTotalsThe Mann CorporationCommonShares IPOTransaction (inthousands)No-par8% Preferred No-par8% Preferred PreferredIPOPreferred IPO DividendDividendCompX InternationalTransactionCashStockSplitStockDividendShareRepurchaseBalanceSheetTotal