Question
Part A On June 30, 2016, Gunderson Electronics issued 8% stated rate bonds with a face amount of $300 million. The bonds mature on June
Part A
On June 30, 2016, Gunderson Electronics issued 8% stated rate bonds with a face amount of $300 million. The bonds mature on June 30, 2036 (20 years). The market rate of interest for similar bond issues was 10% (5% semiannual rate). Interest is paid semiannually (4%) on June 30 and December 31, beginning on December 31, 2016. Required: a. Determine the price of the bonds on June 30, 2016. b. Calculate the interest expense Gunderson reports in 2016 for these bonds.
Part B.
Shakey Mining operates a copper mine in Montana. Acquisition, exploration, and development costs totaled $8.2 million. Extraction activities began on July 1, 2016. After the copper is extracted in approximately ten years, Shakey is obligated to restore the land to its original condition, including constructing a park. The company's controller has provided the following two cash flow possibilities for the restoration costs:
| Cash Flow | Probability |
1. | $700,000 | 60% |
2. | 900,000 | 40% |
The company's credit-adjusted, risk-free rate of interest is 8%, and its fiscal year ends on December 31. Required: 1. What is the present value of the asset retirement obligation (ARO)?
2. How much accretion expense will Shakey report in its 2016 income statement? 3. What is the book value of the asset retirement obligation that Shakey will report in its 2016 balance sheet?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started