I do not understand how to answer any of the questions at the end and would like assistance on on how to answer the questions.

Note: Our second case assignment for the quarter is the Harvard Business School Brief Case about Lyons Document Storage Corporation. Please go to our class website and buy the Harvard Case, but then use the following modification for you analysis and discussion. Please attach the copy of the Harvard case to your submission so that I will know that you purchased it. I think you'll find this to be a little more straightforward presentation of the key issues. Lyons Document Storage Corporation: Bond Accounting. In December 2014, Rene Cook sat in her cubicle trying to remember what she had learned in business school about bonds and bond accounting. Ms. Cook, a new MBA and special assistant in a training assignment with the company president, had just met with David Lyons, president of Lyons Document Storage Corporation. He had asked her to think about the possible consequences of repurchasing company bonds outstanding using cash that he felt could be obtained by issuing new bonds with a lower interest rate. My Lyons had asked Rene to focus on how much the company's annual interest payments could be reduced, how reported earnings would be affected, and how the refunding would change the company's financial position as referenced on the balance sheet, if at all. The Company The Lyons Company was a family business in the stationary supply business until the document storage opportunity appeared in the early 1990's. Lyons Document Storage Corporation was incorporated in 1993 to compete in the emerging and rapidly growing industry that provides secure, off-site storage of documents for other corporate customers. The demand for storage was fueled by the need for corporations to retain records of sales contracts, employment records, compliance records, and other documents. The convenience of secure storage and easy recovery in professionally managed warehouses appealed to corporate clients that wanted to save space in their more expensive office buildings. At the same time, the stationary supply business was growing more competitive with the entrance of Staples, Office Depot and Office Max. The early 2000's were difficult for Lyons because there were still differences among management about directions and the company's future. A large competitor, Iron Mountain, was expanding rapidly in the United States and internationally. When the decision to focus on document storage was made, it was imperative to move quickly to secure storage space and transportation equipment. Management decided to fund the company's growth by issuing debt rather than by issuing additional equity. Lyons had operated conservatives without any long-term debt until it issued bonds in January of 2005. The bonds issued were $10 million in 20-year bonds, offering a coupon rate of 8%, with interest paid semiannually, and sold to yield the 9% market rate of interest at the time. Current Situation David Lyons had told Rene Cook that he felt the time might be ripe to refund the 2005 bond issue and replace it with bonds bearing lower interest rates. He had talked with the company's investment bankers who had told him that $10 million in new 6% bonds with semiannual interest payments could be issued to provide the company with exactly $10 million, not considering underwriting costs and legal fees that were expected to be nominal. The bonds would pay $300,000 of interest every June 30 and December 31 with a payment of $10 million in principal at the end of 10 years. The new interest payments would be $200,000 less each year than those due on the old bonds, which still had 10 years before they would be paid off. To Lyons, that seemed to offer a saving over the old bonds. The existing bonds had been issued on January 1, 2005 and would be due December 31, 2024. Interest was paid semiannually to holders of the bonds. Beginning her research, Rene reached for her copy of Lyons Document Storage's 2013 Annual Report. (See Exhibit 1 for the Liabilities section of the 2013 Annual Report.) She was confused as to why the liability for the $10 million bonds was only $9.3 million at the end of 2013. To clarify her understanding, Rene called the company's controller, Eric Petro, and learned that the 2005 bonds had been issued at a discount. Only about $9.1 million was received when the bonds were issued. For further information, Petro referred Rene to footnote 8 of the company's 2013 financial statements (Exhibit 2). Next, Rene went to the Internet to determine the market price of the company's bonds. The current price was shown as $114.88 - reflecting the 6% yield the market for bonds was currently supporting. This meant that each $1,000 bond would have to be repurchased for $1,149. The company would have to spend $11.5 million to retire bonds that would be listed on the December 2014 balance sheet at less than $10 million. The resulting loss would shrink the 2015 projected earnings and slow the growth rate in earnings about which David Lyons was so proud. Rene knew this would not make Mr. Lyons happy. However, the lower interest payments associated with the new bonds would help reduce cash outflows in future years. Student Assignment: 1. Lyons Document Storage's controller, Eric Petro, told Rene that the 2005 bonds were issued at a discount and that only approximately $9.1 million was received in cash. Explain what is meant by the terms \"premium\" or \"discount\" as they relate to bonds. Compute exactly how much the company received from its 8% bonds if the rate prevailing at the time they were issued was 9%. Also, recomputed the amounts shown in the balance sheet at December 31, 2012 and 2013. Finally, compute what the carrying value of the bonds will be in the soon to be issued December 31, 2014 balance sheet. 2. What is the market value of the bonds at December 31, 2014 at the current effective interest rate of 6%? If you were Rene Cook, would you recommend issuing $10 million, 6% bonds on January 1, 2015 and using the proceeds plus other cash to buy back the existing $10 million, 8% bonds? What accounting loss will be reported if you do this? How does the present value of the interest savings compare to the out of pocket loss on refunding the old bonds? Ignore the effects of income taxes. 3. Assume that the company would like to avoid the cash flow hit from issuing $10 million of new bonds, while spending $11.5 million to buy back the old bonds. Could they issue $11.5 million of the new bonds? How would this change your analysis? Would you recommend this option? 4. There is no indication in this case that the 2005 bonds were \"callable\". Assume that the bonds are callable at 102. That is, there is a 2% call premium over par value. What accounting loss would result if the bonds were called at this price? If the bonds were in fact callable, how would this impact your analysis and recommendation? Exhibit 1: Liabilities and Shareholders' Equity - December 31 ($ in thousands) 2013 Current Liabilities: Accounts Payable Accrued expenses including interest Income taxes payable Total current liabilities Long term debit (Note 8) Total Liabilities 2012 $8,756 1,751 2,488 12,995 $8,598 1,756 2,350 12,704 9,311 9,275 $22,306 $21,979 Exhibit 2 Long-Term Debt Footnote On January 1, 2005 the company issued $10 million, 8% bonds payable that mature on December 31, 2024. Interest is payable semiannually on June 30 th and December 31 of each year. The market rate of interest for similar bond offerings at the time our bonds were issued was 9%. For financial reporting purposes, the discount on bonds payable is being amortized using the effective interest method over the life of the bonds. These bonds are presented in the accompanying balance sheet net of bonds discount as follows: 2013 Bonds Payable Less: Unamortized Discount Carrying Value of Bonds Payable 2012 $10,000 689 $9,311 $10,000 725 $9,275