Stealth Sky Views $($SSV$)$ is a private company that operates tourist rides from St John $$ s$,$ Newfoundland. T

Required

Provide Sam with a report that calculates each of the three financing options he has laid out, along with journal entries

where requested. He would ideally like to minimize the amount of cash that he is required to repay over the next three

years in order to cover operating costs. He would also like you to comment on the advantages and disadvantages of

the various options. You may assume that the receipt of any cash and the purchase of the plane take place on January $1$

and that SSV has a December $31$ year end.

Exhibit I

Seaplane Financing Options

The plane Sam wants to buy is expected to cost $$500,000.$ The freight

charges to deliver the plane will amount to $$5,000$ and the plane is

expected to last $15$ years with proper maintenance and will have a

salvage value of $$20,000.$ Sam depreciates his assets on a straight$-$line

basis. Sam would like you to provide the initial recording of the

asset. You may assume that payment will be some form of loan for

this portion and that the $$5,000$ delivery will be paid in cash; in other

words, it will not be part of the $$ nancing. Sam would also like you to

prepare the journal entry to record depreciation for the $$ rst year.

Financing Option #$1$

Obtain a $$500,000$ loan from the Royal Bank of Ryan. The loan

would be repayable in $$ ve equal principal payments plus interest on

December $31$ of each year. The loan would carry an interest rate of

$6\%.$ Sam would like to see the entry for the receipt of the loan and

the recording of the journal entries on December $31.$

Financing Option #$2$

Issue $$500,000$ of bonds. The bond issue would be developed with a

stated rate of $6\%$ and would be a $10-$year bond with interest paid

semi$-$annually on June $30$ and December $31.$ The current market rate

for a similar bond is $4\%.$ Sam would like the journal entry for the

bond issue and the journal entry for the $$ rst two interest payments.

SSV would use the effective interest rate to amortize any bond dis$-$

count or premium.

Financing Option #$3$

Issue $50,000$ common shares at $$10$ per share to private investors.

Sam currently has $100,000$ common shares outstanding, with his

wife holding half and Sam holding half. He also has $5,000$

preferred shares outstanding. They are all owned by his father and

are cumulative, paying a dividend of $$4$ per share. For the $$ rst

time, no dividends were paid last year. It would be expected that

a $$100,000$ dividend would be declared on November $1$ of this

year with a payment date of February $1.$ Sam would like the

journal entry for the issuance of the shares and any dividend does

get declared.