300 Howell Company has the following selected accounts as at December 31, 2019 (dollar values in thousands) ($,000) Accounts Payable 7,500 Notes Payable, 3-month 8,000 Accumulated Depreciation Equipment 1,400 Salaries and Wages Payable 2,700 Notes Payable, 5-year, 8% 3,000 Warranty Liability 3,400 Salaries and Wages Expense 600 Interest Payable Mortgage Payable 20,000 Sales Taxes Payable 2,100 (a) Prepare the current liability section of Howell Company's statement of financial position for the year ended on December 31, 2019, assuming $2,500,000 of the mortgage is payable next year. (List liabilities in magnitude order, with largest dollar value first.) (b) Howell Company is considering two alternatives for the financing of some high technology medical equipment. These two alternatives are: 1. Issue 500,000 ordinary shares with a $10 par value at $50 per share. 2. Issue $25,000,000, 10-year 10% semi-annual coupon bonds, with a yield to maturity of 8% After acquiring the medical equipment, earnings before interest and taxes is expected to increase to $9,000,000. The company has an estimated tax rate of 30% and has 1,200,000 ordinary shares outstanding prior to the new financing. Required: (i) Compute issue price of the coupon bonds. (ii) Determine the effect on net income and earnings per share for these two methods of financing. Discuss. (c) In addition to information provided in parts (a) and (b) above, Howell's 2019 financial statements also contained the following data (dollar values in thousands). ($,000) ($,000) Current assets 50,000 Accounts receivable $1,550 Total assets 101,550 Income tax expense 1,270 Total liabilities 56,950 Net income 2,230 Cash 910 Required: (i) Comment on Howell's liquidity by referring to its current ratio. (ii) Comment on Howell's solvency by referring to its debt to total assets ratio, before and after the 10% bonds issue. (iii) Compare your answers in (i) and (ii), and explain your observations. (d) Susan Chan works for Howell. Her best friend, Lisa Wong, works for Trival Company which is the competitor of Howell with similar bond rating. Both companies issued coupon bonds almost on the same date in 2020. Howell's bonds were issued at a premium, while Trival's were issued at a discount. Right after the bond issue, Susan sent Lisa a fax telling Lisa that it was obvious who the better company was because the market had shown its preference. Required: Do you agree to Susan's view? Explain. 300 Howell Company has the following selected accounts as at December 31, 2019 (dollar values in thousands) ($,000) Accounts Payable 7,500 Notes Payable, 3-month 8,000 Accumulated Depreciation Equipment 1,400 Salaries and Wages Payable 2,700 Notes Payable, 5-year, 8% 3,000 Warranty Liability 3,400 Salaries and Wages Expense 600 Interest Payable Mortgage Payable 20,000 Sales Taxes Payable 2,100 (a) Prepare the current liability section of Howell Company's statement of financial position for the year ended on December 31, 2019, assuming $2,500,000 of the mortgage is payable next year. (List liabilities in magnitude order, with largest dollar value first.) (b) Howell Company is considering two alternatives for the financing of some high technology medical equipment. These two alternatives are: 1. Issue 500,000 ordinary shares with a $10 par value at $50 per share. 2. Issue $25,000,000, 10-year 10% semi-annual coupon bonds, with a yield to maturity of 8% After acquiring the medical equipment, earnings before interest and taxes is expected to increase to $9,000,000. The company has an estimated tax rate of 30% and has 1,200,000 ordinary shares outstanding prior to the new financing. Required: (i) Compute issue price of the coupon bonds. (ii) Determine the effect on net income and earnings per share for these two methods of financing. Discuss. (c) In addition to information provided in parts (a) and (b) above, Howell's 2019 financial statements also contained the following data (dollar values in thousands). ($,000) ($,000) Current assets 50,000 Accounts receivable $1,550 Total assets 101,550 Income tax expense 1,270 Total liabilities 56,950 Net income 2,230 Cash 910 Required: (i) Comment on Howell's liquidity by referring to its current ratio. (ii) Comment on Howell's solvency by referring to its debt to total assets ratio, before and after the 10% bonds issue. (iii) Compare your answers in (i) and (ii), and explain your observations. (d) Susan Chan works for Howell. Her best friend, Lisa Wong, works for Trival Company which is the competitor of Howell with similar bond rating. Both companies issued coupon bonds almost on the same date in 2020. Howell's bonds were issued at a premium, while Trival's were issued at a discount. Right after the bond issue, Susan sent Lisa a fax telling Lisa that it was obvious who the better company was because the market had shown its preference. Required: Do you agree to Susan's view? Explain