Question

Chec On the last day of its fiscal year ending December 31, 2018, the Sedgwick & Reams (S&R) Glass Company completed two financing arrangements. The funds provided by these initiatives will allow the company to expand its operations (EV OD 51. PV 51. EVA 51 PVA of $1. EVAD of $1 and PVAD of SD) (Use appropriate factor(s) from the tables provided.) 1. S&R issued 9% stated rate bonds with a face amount of $120 million. The bonds mature on December 31, 2036 (20 years). The market rate of interest for similar bond issues was 10% (5.0% semiannual rate). Interest is paid semiannually (4.5%) on June 30 and December 31, beginning on June 30, 2019 2. The company leased two manufacturing facilities. Lease A requires 20 annual lease payments of $270,000 beginning on January 1, 2019. Lease B also is for 20 years, beginning January 1, 2019. Terms of the lease require 17 annual lease payments of $290,000 beginning on January 1, 2022. Generally accepted accounting principles require both leases to be recorded as liabilities for the present value of the scheduled payments. Assume that an 11% interest rate properly reflects the time value of money for the lease obligations Required: What amounts will appear in S&R's December 31, 2018, balance sheet for the bonds and for the leases? (Enter your answers in whole dollars. Do not round Intermediate calculations. Round your final answers to nearest whole dollar amount.) Bond liability Lease Aliability Lease B liability

Answer 1

Bond liability PVIF @5% Period Bond Cash Flows DCF 17.1591 9,26,59,140 $ 54,00,000 1-40 (120 9%*6/12) $ 12,00,00,000 0.1420 1,70,40,000 40 $10,96,99,140 Total PV Discount on Bond (120000000-109699140) $1,03,00,860 Lease A Liability Annual Lease Payment 270000 Interest rate 11% 20 years Lease payment term Due Beginning 1+PVA (11%, 19 years) Lease A Liability as on Dec 31, 2018 (270000*8.8393) 8.8393 $ 23,86,611 Lease B Liability $ Annual Lease Payment 2,90,000 Interest rate 11% 17 years Lease payment term Due Beginning 1+PVA (11%, 16 years) Lease B Liability as on Jan 1, 2022 8.3792 24,29,968 (290000*8.3792) PVI (11%, 3 years) 0.7312 Lease B Liability as on Dec 31, 2018 (2429968 0.7312) 17,76,793 Conclusion Bond Liability 10,96,99,140 Lease A Liability $ 23,86,611 Lease B Liability $ 17,76,793