The accounting records of Brigham Foods, Inc., include the following items at December 31, 2018:

Requirements

1. Show how each relevant item would be reported on the Brigham Foods classified balance sheet. Include headings and totals for current liabilities and long-term liabilities.

2. Answer the following questions about Brigham Food’s financial position at December 31, 2018:

a. What is the carrying amount of the bonds payable (combine the current and long-term amounts)?

b. Why is the interest-payable amount so much less than the amount of interest expense?

3. How many times did Brigham Foods cover its interest expense during 2018?

4. Assume that all of the existing liabilities are included in the information provided. Calculate the leverage ratio and debt ratio of the company. Use year-end figures in place of averages where needed for the purpose of calculating ratios in this problem. Evaluate the health of the company from a leverage point of view. Assume the company only has common stock issued and outstanding. What other information would be helpful in making your evaluation?

5. Independent of your answer to (4), assume that Footnote 8 of the financial statements includes commitments for long-term operating leases over the next 15 years in the amount of $3,800,000. If the company had to capitalize these leases in 2018, how would it change the leverage ratio and the debt ratio? How would this impact your assessment of the company’s health from a leverage point of view?

Transcribed Image Text:

Mortgage note payable, current portion. Leases payable (long-term).. Bonds payable, long-term... Mortgage note payable, long-term .. Bonds payable, current portion ... Interest expense... Total assets $4,500,000 Accumulated depreciation, equipment. Discount on bonds payable (all long-term). Operating income.. 98,000 445,000 325,000 163,000 21,000 311,000 50,000 360,000 744,000 Equipment.. Long-term investments (market value). . Interest payable.. 229,000 400,000 76,000