Gerald Luna is a 45-year-old client with a 15-year history of type 2 diabetes mellitus and a 30-year history of alcoholism. His blood glucose is not well controlled on an oral hypoglycemic agent, and he drinks one six-pack of beer per day. Gerald works at a casino as a slot machine repairman. His wife of 25 years, Andrea, is also employed by the casino in the accounting department. Gerald and Andrea live on a reservation near the casino in a rural setting.

Gerald was involved in a car accident on the way to work. He was not restrained and was thrown from the car into the roadside brush. The crash was witnessed, and bystanders called 911. First responders arrived to find Gerald unconscious with labored breathing and a deformed right lower extremity. A witness stated that Mr. Luna just drove off the road and appeared to be asleep. No other vehicles were involved. The first responders established monitoring equipment, intubated Gerald at the scene, started intravenous fluids with 0.9% normal saline, and splinted his right lower extremity.

Evaluate the information in the case and determine the Top 3 Priority concerns or cues.

Consider two bonds, a 3-year bond paying an annual coupon of 7%, and a 20-year bond, also with an annual coupon of 7%. Both bonds currently sell at par value. Now suppose that interest rates rise and the yield to maturity of the two bonds increases to 10%.

a. What is the new price of the 3-year bond? (Round your answer to 2 decimal places.)

b. What is the new price of the 20-year bond? (Round your answer to 2 decimal places.)

c. Do longer or shorter maturity bonds appear to be more sensitive to changes in interest rates?

On January 1, Year 1, Shine Corporation purchased as an investment $400,000 of 10-year, 8% bonds. The bonds pay interest semi-annually on June 30 and December 31. The bonds will yield 10% on an annual basis. All amounts are rounded to the nearest dollar. Shine Corporation intends to hold the bonds to maturity and therefore uses the cost/amortized cost model. Shine Corp. follows IFRS.

Required

1. Calculate the purchase price of the bond investment.
2. Prepare a bond amortization table for the bond. Use Excel and copy the table into your assignment.
3. Assuming the fiscal year is the calendar year, give all Shine’s Journal entries related to the bonds for Year 1 and Year 2. Year end is December 31. Hint: there are six journal entries.

Vulcan Service Co. experienced the following transactions for Year 1, its first year of operations:

Provided $84,000 of services on account.

Collected $50,400 cash from accounts receivable.

Paid $30,000 of salaries expense for the year.

Adjusted the accounts using the following information from an accounts receivable aging schedule:

Required
a. Record the above transactions in general journal form and post to T-accounts.
b. Prepare the income statement for Vulcan Service Co. for Year 1.
c. What is the net realizable value of the accounts receivable at December 31, Year 1?

Sage Inc. experienced the following transactions for Year 1, its first year of operations: Issued common stock for $110,000 cash. Purchased $200,000 of merchandise on account. Sold merchandise that cost $160,000 for $318,000 on account. Collected $278,000 cash from accounts receivable. Paid $180,000 on accounts payable. Paid $60,000 of salaries expense for the year. Paid other operating expenses of $76,000. Sage adjusted the accounts using the following information from an accounts receivable aging schedule: Number of Days Past Due Amount Percent Likely to Be Uncollectible Allowance Balance Current $ 24,000 0.01 0–30 10,000 0.05 31–60 2,000 0.10 61–90 2,000 0.20 Over 90 days 2,000 0.50 Required

a. Organize the transaction data in accounts under an accounting equation. (Enter any decreases to account balances with a minus sign. Not all cells in the "Accounts Titles for Retained Earnings" column may require an input - leave cells blank if there is no corresponding Retained Earnings input needed.)

b. Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Sage Inc. for Year 1.

c. What is the net realizable value of the accounts receivable at December 31, Year 1?

Westerville Company reported the following results from last year’s operations:

At the beginning of this year, the company has a $362,500 investment opportunity with the following cost and revenue characteristics:

The company’s minimum required rate of return is 10%.

7. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

The following transactions are from Ohlm Company. (Use 360 days a year.)

Year 1

Year 2

Required:
1-a. First, complete the table below to calculate the interest amount at December 31, Year 1.

1-b. Use the calculated value to prepare your journal entries for Year 1 transactions.

• 1

  Accepted a $14,400, 60-day, 9% note in granting Danny Todd a time extension on his past-due account receivable.

• 2

  Made an adjusting entry to record the accrued interest on the Todd note.

1-c. First, complete the table below to calculate the interest amounts.

First, complete the table below to calculate the interest amounts. (Do not round intermediate calculations.)

1-d. Use those calculated values to prepare your journal entries for Year 2 transactions.

• 1

  Received Todd’s payment of principal and interest on the note dated December 16.

• 2

  Accepted a(n) $7,700, 9%, 90-day note in granting a time extension on the past-due account receivable from Midnight Co.

• 3

  Accepted a(n) $2,700, 30-day, 7% note in granting Ava Privet a time extension on her past-due account receivable.

• 4

  Privet dishonored her note.

• 5

  Midnight Co. dishonored its note.

• 6

  Accepted a(n) $8,900, 90-day, 12% note in granting a time extension on the past-due account receivable of Mulan Co.

• 7

  Accepted a(n) $2,330, 60-day, 8% note in granting Noah Carson a time extension on his past-due account receivable.

• 8

  Received payment of principal plus interest from Carson for the September 3 note.

• 9

  Received payment of principal plus interest from Mulan for the August 7 note.

• 10

  Wrote off the Privet account against the Allowance for Doubtful Accounts.

2. If Ohlm pledged its receivables as security for a loan from the bank, where on the financial statements does it disclose this pledge of receivables?

The yield to maturity on 1-year zero-coupon bonds is currently 5.5%; the YTM on 2-year zeros is 6.5%. The Treasury plans to issue a 2-year maturity coupon bond, paying coupons once per year with a coupon rate of 7.5%. The face value of the bond is $100.

a. At what price will the bond sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Price:

b. What will the yield to maturity on the bond be? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

Yield to Maturity:

c. If the expectations theory of the yield curve is correct, what is the market expectation of the price that the bond will sell for next year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Price:

d. Recalculate your answer to (c) if you believe in the liquidity preference theory and you believe that the liquidity premium is 1.5%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Price:

Portfolio Alpha contains a 5-year zero-coupon bond with a face value of $5,000 and a 9-year zero-coupon bond with a face value of $6,050. Portfolio Beta is composed of only a 7-year zero-coupon bond with a face value of $10,000. The current yield on all three bonds is 5% per annum. Show that both portfolios have the same duration. What percentage changes in the two portfolio values would result from all three yields jumping to 7.5% per annum?

Macy Pharmacy has a project which has the following cash flows.

Year 0 = -$200,000

Year 1 = $50,000

Year 2 = $100,000

Year 3 = $150,000

Year 4 = $40,000

Year 5 = $25,000

The initial cost of capital is 10%. The financial manager wants to see what happens to the project's net present value if the cost of capital were increased to 12%.