Question

4 e second lease payment, enton Computer Cacat of dine) at December 31.1 Prepare the journal entry required to Cola's income statem tely after acquiring th on Coca-Cola's ability he to Parure the journal entry required to record these 2001. What will be the effect of the capital lease on Coca- Compute Coca-Cola's debt/equity ratio immedia Comment on the impact of the lease agreement on ditional long-term financing 206 coupon, 10-year bond cre sold to yield 1096, of interest stays at 10% odson plo. Thema net P12-4 O'Brien Corporation issued $100,000, face-value. 896 1. 2001. The bonds puy interest semiannually and were so ing price was $87.538. Assume that the market rate of in 587.386 interest semios face-value prar por ds to sell at a discount. ord the sale of the bonds. Required: a. Explain what factors would cause the bonds to sell at a h Prepare the entry that O'Brien made to record the sale of c Design an Excel spreadsheet to complete the following Interest Coupon Beginning Balance Expense Payment Amor Discount Amorti TO From Το 1/1/01 6/30/01 7/1/01 12/31/01 1/1/02 6/30/02 7/1/02 12/31/02 1/1/03 6/30/03 7/1/03 12/31/03 1/1/04 6/30/04 7/1/04 12/31/04 6/30/05 12/31/05 1/1/05 7/1/05 1/1/06 7/1/06 1/1/07 7/1/07 1/1/08 6/30/06 12/31/06 6/30/07 12/31/07 6/30/08 12/31/08 6/30/09 12/31/09 7/1/08 1/1/09 7/1/09 1/1/10 7/1/10 6/30/10 12/31/10 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 2001. balance sheet at December 31,

P12-4

(A) through (E)

Answer 1

$100,000 A a. Bonds are sold at a discount when the market interest rate (10%) exceeds the coupon rate of the bond (8%) c. Excel Spread sheet of Schdule Future value: (The face value of the bonds). 20 Number of periods: 20 (10 years of semiannual payments). From $4,000 B Interest Coupon Discount Expense = Payment Amortisation BC 2 3 = 6* 5% 4 =B 5 = 3-4 5% C ($87,537.79) ($87,537.79) B $12,462.21 Credit Debit 100,000.00 $ Beginning of the Period 1/1/2001 6/30/2001 $4,376.89 7/1/2001 12/31/2001 $4,395.73 1/1/2002 6/30/2002 $4,415.52 7/1/2002 12/31/2002 $4,436.30 1/1/2003 6/30/2003 $4,458.11 7/1/2003 12/31/2003 $4,481.02 1/1/2004 6/30/2004 $4,505.07 7/1/2004 12/31/2004 $4,530.32 1/1/2005 6/30/2005 $4,556.84 7/1/2005 12/31/2005 $4,584.68 1/1/2006 6/30/2006 $4,613.91 7/1/2006 12/31/2006 $4,644.61 1/1/2007 6/30/2007 $4,676.84 7/1/2007 12/31/2007 $4,710.68 1/1/2008 6/30/2008 $4,746.22 7/1/2008 12/31/2008 $4,783.53 1/1/2009 6/30/2009 $4,822.70 7/1/2009 12/31/2009 $4,863.84 1/1/2010 6/30/2010 $4,907.03 7/1/2010 12/31/2010 $4,952.38 $12,462.21 $87,537.79 Carrying Amount Payment: (4% semiannual coupon multiplied by the face value i.e 8%/2). 6 = 6 of previous Rate: (10% yield-to-maturity divided by two semiannual period +5 periods). $87,537.79 $87,914.68 Present Value = (Rate, No. of period, Payment, Face value) $88,310.41 Money Received Effectively $88,725.93 Discount (A-D) $89,162.23 $89,620.34 b. Entry to record Sale of Bond $90,101.36 Cash $90,606.43 Discount on Bonds (payable) $91,136.75 D Bonds Payable, 10% due in 10 years $91,693.59 $92,278.27 d. Entry to record the first interest payment $92,892.18 Debit - Interest Payment Account $93,536.79 Debit - Bond Dscount Account (for amortisation) $94,213.63 Credit Interest Payable - to Bond holders/ Cash $94,924.31 $95,670.52 e. Bonds in the Balance sheet of 31.12.2001 $96,454.05 Long Term Liabilitites: $97,276.75 Bonds Payable, 10% due in 10 years $98,140.59 Less: Discount on Bonds $99,047.62 $100,000.00 4000 4000 4000 4000 40001 40001 4000 4000 4000 4000 4000 4000 4000 40001 4000 40001 40001 4000 4000 4000 Credit $376.89 $395.73 $415.52 $436.30 $458.11 $481.02 $505.07 $530.32 $556.84 $584.68 $613.91 $644.61 $676.84 $710.68 $746.22 $783.53 $822.70 $863.84 $907.03 $952.38 Debit $4,376.89 $376.89 $4,000.00 H.Y2 $4,395.73 $395.73 $4,000.00 l $ $ 100,000.00 (12,462.21) $87,537.79