Burbank Corporation (calendar-year end) acquired the following property this year:

a. Assuming no bonus or §179 expense, what is Burbank’s maximum cost recovery deduction for this year?

b. Assuming Burbank would like to maximize its cost recovery deductions by electing bonus and §179 expense, which assets should Burbank immediately expense? Assume the 2014 §179 expense limits and bonus depreciation are extended to this year.

c. What is Burbank’s maximum cost recovery deduction this year assuming it elects §179 expense and bonus depreciation?

3. One year treasuries yield 5% and two year Treasuries yield 5.50%. You have a two year time horizon. You are considering a one year roll of Treasuries. What would you have to get in the second year to beat just holding the two year Treasury? (Carry your answer out three decimal places.)
4. What are the components of a bond?
5. Assume Capital Inc has an outstanding 15 year bond with a 10% coupon (annual pay) with a par value of $1000. The market yield for this bond is 15%. What is the price/present value of the bond? If the bond is callable in ten years at 102 what would the yield to the call be given the price you calculated above.

A company issues $17,200,000, 5.8%, 20-year bonds to yield 6% on January 1, Year 7. Interest is paid on June 30 and December 31. The proceeds from the bonds are $16,802,426. Using straight-line amortization, what is the interest expense in Year 8 and what is the carrying value of the bonds on December 31, Year 9?

Record journal entries as well

CMOS Chips is hedging a 20-year, $18 million, 9% bond payable with a 20-year interest rate swap and has designated the swap as a fair value hedge. The agreement called for CMOS to receive payment based on a 9% fixed interest rate on a notional amount of $18 million and to pay interest based on a floating interest rate tied to LIBOR. The contract calls for cash settlement of the net interest amount on December 31 of each year.

At December 31, 2021, the fair value of the derivative and of the hedged bonds has increased by $108,000 because interest rates declined during the reporting period.

Required:
1-a. Does CMOS have an unrealized gain or loss on the derivative for the period?
1-b. Does CMOS have an unrealized gain or loss on the bonds?
1-c. Will earnings increase or decrease due to the hedging arrangement?
2. Suppose interest rates increased, rather than decreased, causing the fair value of both the derivative and of the hedged bonds to decrease by $108,000.
a. Would CMOS have an unrealized gain or loss on the derivative for the period?
b. Would CMOS have an unrealized gain or loss on the bonds?
c. Would earnings increase or decrease due to the hedging arrangement?
3. Suppose the fair value of the bonds at December 31, 2021, had increased by $136,000 rather than $108,000, with the additional increase in fair value due to investors’ perceptions that the creditworthiness of CMOS was improving.
a. Would CMOS have an unrealized gain or loss on the derivative for the period?
b. Would CMOS have an unrealized gain or loss on the bonds?
c. Would earnings increase or decrease due to the hedging arrangement?
4. Suppose the notional amount of the swap had been $20 million, rather than the $18 million principal amount of the bonds. As a result, at December 31, 2021, the swap’s fair value had increased by $136,000 rather than $108,000.
a. Would CMOS have an unrealized gain or loss on the derivative for the period?
b. Would CMOS have an unrealized gain or loss on the bonds?
c. Would earnings increase or decrease due to the hedging arrangement?
5. Suppose BIOS Corporation is an investor, having purchased all $18 million of the bonds issued by CMOS as described in the original situation above. BIOS is hedging its investment, classified as available-for-sale, with a 20-year interest rate swap and has designated the swap as a fair value hedge. The agreement called for BIOS to make payment based on a 9% fixed interest rate on a notional amount of $18 million and to receive interest based on a floating interest rate tied to LIBOR.
a. Would BIOS have an unrealized gain or loss on the derivative for the period due to interest rates having declined?
b. Would BIOS have an unrealized gain or loss on the bonds?
c. Would earnings increase or decrease due to the hedging arrangement?
  

On January 1, Year 1, Company C purchased 10 of the $10,000 face value, 10%, 2-year bonds of Company D. The bonds mature on December 31, Year 2, and pay interest annually on December 31. Company C purchased the bonds to yield 12% and classified the bonds as held-to-maturity. The company's policy is to amortize the bonds' premium or discount according to the effective interest method. Information on present value factors is a as follows:

Enter the appropriate amounts in the designated cells below. Round all amounts to the nearest dollar. If no entry is necessary, enter a zero (0). Enter all amounts as positive values.

Forten Company, a merchandiser, recently completed its calendar-year 2017 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company’s income statement and balance sheets follow.

Additional Information on Year 2017 Transactions

The loss on the cash sale of equipment was $20,125 (details in b).

Sold equipment costing $91,875, with accumulated depreciation of $45,125, for $26,625 cash.

Purchased equipment costing $111,375 by paying $60,000 cash and signing a long-term note payable for the balance.

Borrowed $5,500 cash by signing a short-term note payable.

Paid $57,625 cash to reduce the long-term notes payable.

Issued 4,000 shares of common stock for $20 cash per share.

Declared and paid cash dividends of $53,100.

Required:
1. Prepare a complete statement of cash flows; report its operating activities using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)
  

Chlo is planning for her 15 year-old daughter’s university education.  She estimates that 1 year of university would cost $15,000 in today’s dollars, but will rise with the rate of inflation of 2% year over year.  How much would Chlo need to have accumulated by the time her daughter starts university at the age of 19 provided she attends university for 3 years and will receive funds at the beginning of each year?  Assume an investment rate of 3.6%, compounded monthly

Seashore Corp. estimates their future free cash flows as followed: Year 1: $10,000; Year 2: $11,600; Year 3: $12,000; and they expect a 5% growth rate beyond year 3. If the required rate of return is 14%:

26) What is their terminal value in Year 3?

A.) $140,000

B.) $133,333

C.) $152,000

D.) $120,293

What is a fair stock price per share of Seashore Corp. if they have $57,000 in debt and 2,400 shares outstanding?

A.) $41.93

B.) $34.58

C.) $26.37

D.) $19.22

If a seashore employee started to contribute to her 401k retirement account. She determines to deposit $200 every month and the retirement fund earns 9% APR. How much will she have in her retirement account in 40 years from now?

A.) $936,264

B.) $597,288

C.) $720,262

D.) $259,281

Forten Company, a merchandiser, recently completed its calendar-year 2017 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company’s income statement and balance sheets follow. FORTEN COMPANY Comparative Balance Sheets December 31, 2017 and 2016 2017 2016 Assets Cash $ 75,400 $ 90,500 Accounts receivable 91,440 67,625 Inventory 301,156 268,800 Prepaid expenses 1,380 2,235 Total current assets 469,376 429,160 Equipment 140,500 125,000 Accum. depreciation—Equipment (45,125 ) (54,500 ) Total assets $ 564,751 $ 499,660 Liabilities and Equity Accounts payable $ 70,141 $ 140,175 Short-term notes payable 15,100 9,400 Total current liabilities 85,241 149,575 Long-term notes payable 56,500 65,750 Total liabilities 141,741 215,325 Equity Common stock, $5 par value 196,750 167,250 Paid-in capital in excess of par, common stock 54,500 0 Retained earnings 171,760 117,085 Total liabilities and equity $ 564,751 $ 499,660 FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales $ 667,500 Cost of goods sold 302,000 Gross profit 365,500 Operating expenses Depreciation expense $ 37,750 Other expenses 149,400 187,150 Other gains (losses) Loss on sale of equipment (22,125 ) Income before taxes 156,225 Income taxes expense 48,050 Net income $ 108,175 Additional Information on Year 2017 Transactions The loss on the cash sale of equipment was $22,125 (details in b). Sold equipment costing $97,875, with accumulated depreciation of $47,125, for $28,625 cash. Purchased equipment costing $113,375 by paying $64,000 cash and signing a long-term note payable for the balance. Borrowed $5,700 cash by signing a short-term note payable. Paid $58,625 cash to reduce the long-term notes payable. Issued 4,200 shares of common stock for $20 cash per share. Declared and paid cash dividends of $53,500.

Required: 1. Prepare a complete statement of cash flows; report its operating activities using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)