please solve P12-5 a,b,c,d by referring P12-4
P12-5 a,b,c,d
What is the economic value of the bonds on December 31,2001? CHAPTER 12 LONG-TERM LIABILITIES g. What should the liability value and the economic value of the bonds be on January 1, 2011, the maturity date of the bonds? Explain. 213 oh. Prepare the entry to record the retirement of the bonds on January 1,2011. P12-5 Refer to P12-4. Assume that on June 30, 2009, market interest rates soared to 12%. Required: COVLE Compute the economic value of the bonds on June 30, 2009. . Comment on any accounting adjustments required by O'Brien Corporation because of the change in market interest rates. b. What entry would be made by O'Brien if it retired the bonds on June 30, 2009, by purchasing the bonds in the open market? C. d. Explain why the action taken in part (c) may not be in the best interests of O'Brien's stockholders. The following is the discount amortization schedule for a $1,000 face, 6% semiannual coupon bond, issued when the market interest rate was 10% (compounded semiannu- ally). The bond was issued on January 1, 2001, and matures on December 31, 2005 Interest P12-6 Ending Discount Coupon Payment Amortization Balance $ 40.00 40.09 Beginning Balance Expense $ 46.14 $ 928.92 $6.14 To Tirom $922.78 935.36 6.45 2001 Comment on the impact of the lease agreement on Coca-Cola's ability i ditional long-term financing dWhat will be the effect of the capital lease on eCompute Coca-Cola's debelequity ratio immediately after a P12-4 OBrien Corporation issued $100,000, face-value, 8% coupon, 10-year bonds on January 1,2001. The bonds pay interest semiannually and were sold to yield 10 %. The final sell ing price was 587,538. Assume that the market rate of interest stays at 10% over the 10 year period Explain what factors would cause the bonds to sell at a discount. Prepare the entry that OBrien made to record the sale of the bonds. Required cDesign an Excel spreadsheet to complete the following schedule Beginning Balance Discount Amortization Coupon Payment Interest Expense From To 6/30/01 12/31/01 1/1/01 7/1/01 6/30/02 1/1/02 7/1/02 12/31/02 6/30/03 1/1/03 7/1/03 12/31/03 6/30/04 12/31/04 /1/04 7/1/04 1/1/05 6/30/05 7/1/05 12/31/05 1/1/06 6/30/06 7/1/06 12/31/06 1/1/07 6/30/07 7/1/07 12/31/07 1/1/08 6/30/08 7/1/08 12/31/08 1/1/09 6/30/09 7/1/09 12/31/09 1/1/10 6/30/10 7/1/10 12/31/10 -d. Prepare the entry to record the first interest payment on June 30, 2001. Show how the bonds would be presented on O'Brien's balance sheet at December 31, 2001. 2001 Comment on the impact of the lease agreement on Coca-Cola's ability i ditional long-term financing dWhat will be the effect of the capital lease on eCompute Coca-Cola's debelequity ratio immediately after ace P12-4 O'Brien Corporation issued $100,000, face-value, 8% coupon, 10-year bonds on January 1,2001. The bonds pay interest semiannually and were sold to yield 10 %. The final sell. ing price was 587.538. Assume that the market rate of interest stays at 10% over the 10 year period & Explain what factors would cause the bonds to sell at a discount. Prepare the entry that OBrien made to record the sale of the bonds. Required CDesign an Excel spreadsheet to complete the following schedule Beginning Balance Discount Amortization Coupon Payment Interest Expense To From 6/30/01 1/1/01 12/31/01 6/30/02 12/31/02 6/30/03 7/1/01 1/1/02 7/1/02 1/1/03 12/31/03 7/1/03 6/30/04 /1/04 7/1/04 12/31/04 1/1/05 6/30/05 7/1/05 12/31/05 1/1/06 6/30/06 7/1/06 12/31/06 1/1/07 6/30/07 7/1/07 12/31/07 1/1/08 6/30/08 7/1/08 12/31/08 1/1/09 6/30/09 7/1/09 12/31/09 1/1/10 6/30/10 7/1/10 12/31/10 d. Prepare the entry to record the first interest payment on June 30, 2001. Show how the bonds would be presented on O'Brien's balance sheet at December 31, 2001. t CHAPTER 12 What is the economic value of the bonds on December 31,2001? What should the liability value and the economic value of the bonds be on January 1, 2011, the maturity date of the bonds? Explain. h. Prepare the entry to record the retirement of the bonds on January 1,2011. LONG-TERM LIABILITIES . 213 P12-5 Refer to P12-4. Assume that on June 30, 2009, market interest rates soared to 12%. Required Compute the economic value of the bonds on June 30, 2009. b. Comment on any accounting adjustments required by O'Brien Corporation because 10N0 OAL of the change in market interest rates. What entry would be made by O'Brien if it retired the bonds on June 30, 2009, by purchasing the bonds in the open market? C. d. Explain why the action taken in part (c) may not be in the best interests of O'Brien's stockholders 12-6/The following is the discount amortization schedule for a $1,000 face, 6% semiannual coupon bond, issued when the market interest rate was 10% ( compounded semiannu- ally). The bond was issued on January 1, 2001, and matures on December 31, 2005. Beginning Balance Interest Coupon Payment Amortization Balance $ 40.00 Discount Ending To Expense $ 46.14 From $922.78 6/30/01 1/1/01 $ 6.14 $ 928.92 12/31/01 6/30/02 12/31/02 6/30/03 12/31/03 928.92 46.45 40.00 6.45 935.36 7/1/01 6.77 942.13 935.36 46.77 40.00 1/1/02 949.2 40.00 47.11 7.11 942.13 7/1/02 956. 7.46 40.00 47.46 949.24 1/1/03 7/1/03 964. 7.84 40.00 47.84 956.70 972 8.23 40.00 48.23 964.54 972.76 1/1/04 6/30/04 98 8.64 40.00 48.64 7/1/04 12/31/04 6/31/05 12/31/05 Totals 99 9.07 40.00 49.07 981.40 1,0 1/1/05 9.52 40.00 49.52 990.47 $77.22 7/1/05 $400.00 $477.22 Required what entry would be made? holder on June 30 d. What will be the effect of the capit e Compute Coca-Cola's debt/equity ratio immediately aft ditional long-term financing. The equipmen 2001. Comment on the impact of the lease agreement on Coca-Cola's ability to obtain ad P12-4 O'Brien Corporation issued $100,000, face-value, 8% coupon, 10-year bonds on January ing price was S87,538. Assume that the market rate of interest stays at 10% over the 10 1,2001. The bonds pay interest semiannually and were sold to yield 10 %. The final sell year period a Explain what factors would cause the bonds to sell at a discount. bPrepare the entry that O'Brien made to record the sale of the bonds. Design an Excel spreadsheet to complete the following schedule: Beginning Required Coupon Payment Discount Amortization Interest xpense Balance To From 6/30/01 1/1/01 7/1/01 12/31/01 6/30/02 1/1/02 7/1/02 12/31/02 1/1/03 6/30/03 12/31/03 7/1/03 6/30/04 1/1/04 2-3 7/1/04 12/31/04 1/1/05 6/30/05 7/1/05 12/31/05 1/1/06 6/30/06 12/31/06 7/1/06 1/1/07 6/30/07 7/1/07 12/31/07 1/1/08 6/30/08 7/1/08 12/31/08 1/1/09 6/30/09 7/1/09 12/31/09 1/1/10 6/30/10 7/1/10 12/31/10 to ol d. Prepare the entry to record the first interest payment on June 30, 2001. e Show how the bonds would be presented on O'Brien's balance sheet at December 31, 2001
