Part I Costco Bonds

On January 1st 1997, Costco Wholesale Corporation issued 20-year, Zero Coupons Bonds with a maturity value of $900 million. The company received $450 million upon issuance of these bonds and is scheduled to repay $900 million on December 31, 2016.

Is there an implied or effective rate of interest for the bond? If so what is the rate and how you derived it? (See Pages 330-331 of the Text). What do you think was the carrying amount of the bonds as of December 31, 2015 on Costcos financial statements (A year before they were paid off)?

Part II Present Value Techniques in Accounting

In addition to restating the value of Zero Coupon Bonds, can you think of other situations where present value techniques are used to restate accounts in Generally Accepted Accounting Principles? (See Pages 343-346 of the Text).

Can you envision the manipulation of valuations based upon present value through the usage of incorrect interest rates, cash flows or payment periods?

Requirement

Prepare a post responding to the questions in Parts I and II above. In another post, respond to a classmates comments in the discussion.