Financial Accounting
3rd Edition
ISBN: 9780133791129
Author: Jane L. Reimers
Publisher: Pearson Higher Ed
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Chapter 10B, Problem 3EA
To determine
Calculate the amount at which the investments would be valued for the yearend
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1. Current assets include cash P3,800, accounts receivables P18,500, note receivables (maturity date is on July 1,2023) P10,000 and land P12,000.
2. Long term investments include a P4,600 investment in fair value though other comprehensive income securitiesthat is expected to be sold in 2022 and a P9,000 investment in AllDay company bonds that are expected to be helduntil their December 31, 2029 maturity date.
3. Property and equipment include buildings costing P63,400, inventories costing P30,500 and equipment costingP29,600.
4. Intangible assets include patents that cost P8,200 and on which P2,300 amortization have accumulated, andtreasury shares that costs P1,800.
5. Other assets include prepaid insurance (which expires on November 30, 2022) P2,900, sinking fund for bondretirement P7,000 and trademarks that cost P5,200 and on which P1,500 amortization has accumulated.
6. Current liabilities include accounts payable P19,400, bonds payable…
The National Bank raised capital through the sale of $150 million face alue of eight percent coupon rate, ten year bonds. The bonds paid interest semiannualy and were sold at at time when equivalent risk- rated bonds carried a yield rate of ten percent.
Calaculate the proceeds that the bank recieved from the sale of the eight percent bonds. How will the bonds be disclosed on the balance sheet immediately following the sale? Calaculatt the interest expense on the bonds for the first year that the bonds are outstanding. Calculate the book value of the bonds at the end of the first year.
Question 1: Fill in the Bond Amortization Table and the highlighted cells using the information from E9.19 in the Data Tab. Show only positive numbers in the first table. Use Excel to do the calculations and don't round.
Period
Cash Payments
Interest Expense
Amortized Discount
Discount Balance
Face Value
Book Value
0
$131,306,684.00
150,000,000
$150,000,000.00
1…
The following information is also available:
1. Current assets include cash P3,800, accounts receivables P18,500, note receivables (maturity date is on July 1, 2023) P10,000 and land P12,000.
2. Long term investments include a P4,600 investment in fair value though other comprehensive income securities that is expected to be sold in 2022 and a P9,000 investment in AllDay company bonds that are expected to be held until their December 31, 2029 maturity date.
3. Property and equipment include buildings costing P63,400, inventories costing P30,500 and equipment costing P29,600.
4. Intangible assets include patents that cost P8,200 and on which P2,300 amortization have accumulated, and treasury shares that costs P1,800.
5. Other assets include prepaid insurance (which expires on November 30, 2022) P2,900, sinking fund for bond retirement P7,000 and trademarks that cost P5,200 and on which P1,500 amortization has accumulated.
6. Current liabilities include accounts payable P19,400, bonds…
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- Complete the following table by putting the proper amount in each column: Assume that $100,000 was invested in each of the following classifications and the market value at the end of the year was $95,000. (For the Current Long term column indicate which classification is correct assuming there are no current maturities on long-term investments) Investment Type Carrying Value Current (C) or Long Term (LT) Adjustment To Income Adjustment to Other Comp Inc Debt Investment Trading Available-For-Sale Held-to-Maturity Equity Investment < 20% Ownership >21%,<50% Ownershiparrow_forwardA) You invest OMR 900 in a bond which gives 9% interest over a period of 2 years, the compounding is done quarterly. How much will be the value of the investment? Select one: a. 1053.24 b. 1254.74 c. 1075.34 d. 753.24 B) Which of the statements are not correct Select one: a. Profits refers to earnings before Interest and Taxes b. Investment decisions relate to pattern of financing c. Dividend pay out ratio refers to what proportion is paid to shareholders d. Borrowed funds are relatively cheaper than shareholders’ fundsarrow_forwardFor the next three questions (1-3) assume what follows: Assume that you acquired a previously issued debt instrument. According to its specifications, it promised to pay $1,000 precisely in two years from the day of its original issue. At the time it was issued, investors anticipated 8.00% in interest on instruments with similar characteristics and risk level. *Note, standard rounding rules apply to all calculations! Q1. What price did you have to pay for this security - under assumption that you acquired it in a secondary market precisely three months after its original issuing, and taking into account that at the time of your acquisition investors anticipated to earn 10.00% in interest on securities with similar features and risk characteristics? A). $857.34 B). $846.37 3000K ASarrow_forward
- Your answer is partially correct. Swifty Ltd. issued a $1,184,000, 10-year bond dated January 1, 2023. The bond was sold to yield 12% effective interest. The bond paid 10% interest on January 1 and July 1 each year. The company's year-end was December 31, and Swifty followed IFRS. Using 1. factor Tables 2. a financial calculator, or 3. Excel function PV, calculate the amount received for the bond, and any discount or premium on the bond.arrow_forwardAn entity has financial assets in the form of bonds that mature in 10 years with variable interest rates. However, the interest rate is capped at the interest rate 10%. The bond is one of the bonds owned by the entity in a bond portfolio. The entity actively manages the returns on the portfolio. These returns consist of obtaining contractual payments as well as gains and losses from the sale of financial assets. As a result, the entity has financial assets to collect contractual cash flows and sells financial assets to reinvest in higher-yielding financial assets or to better match the durability of the entity. In the past, this strategy resulted in sales activity Repeat and the sale is significant in value. This activity is expected to continue in the future. Requested: Determine the proper classification of the bonds.arrow_forwardBelow is Information regarding the capital structure of Micro Advantage Inc. On the basis of this information you are asked to respond to the following three questions: Required: 1. Micro Advantage issued a $5,400,000 par value, 18-year bond a year ago at 97 (1.e., 97% of par value) with a stated rate of 9%. Today, the bond is selling at 110 (1.e., 110% of par value). If the firm's tax bracket is 35%, what is the current after-tax cost of this debt? 2. Micro Advantage has $5,400,000 preferred stock outstanding that it sold for $24 per share. The preferred stock has a per share par value of $23 and pays a $3 dividend per year. The current market price is $28 per share. The firm's tax bracket is 27%. What is the after-tax cost of the preferred stock? 3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has 53,000 shares of common stock outstanding that has a par value of $10 per share and a current market price of $150 per share. The expected…arrow_forward
- Below is information regarding the capital structure of Micro Advantage Inc. On the basis of this information you are asked to respond to the following three questions: Required: 1. Micro Advantage issued a $5,500,000 par value, 16-year bond a year ago at 95 (i.e., 95% of par value) with a stated rate of 8%. Today, the bond is selling at 105 (i.e., 105% of par value). If the firm’s tax bracket is 30%, what is the current after-tax cost of this debt? 2. Micro Advantage has $5,500,000 preferred stock outstanding that it sold for $22 per share. The preferred stock has a per share par value of $25 and pays a $5 dividend per year. The current market price is $27 per share. The firm’s tax bracket is 31%. What is the after-tax cost of the preferred stock? 3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has 63,000 shares of common stock outstanding that has a par value of $10 per share and a current market price of $180 per share. The…arrow_forwardThe Bank of Willaine, Inc. issued an obligation to depositors who agree to pay ten (10) percent failsafe for one year. With the funds it acquires, The Bank of Willaine, Inc. can invest in different financial assets like in the stock market. What is the risk if the bank uses the funds it acquired from the depositors to invest in common stock? What liability type does the bank has by issuing that obligation?arrow_forwardWhich of the following best qualifies as a "cash equivalent?" A firm's investment in "held to maturity" government treasury bonds that mature in 5 years. A firm's equity investment in an unconsolidated subsidiary of a privately held firm. A firm's investment in 90-day government treasury bills. All of these.arrow_forward
- 2. Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?arrow_forwardBelow is information regarding the capital structure of Micro Advantage Inc. On the basis of this information you are asked to respond to the following three questions: Required: 1. Micro Advantage issued a $5,000,000 par value, 20-year bond a year ago at 98 (i.e., 98% of par value) with a stated rate of 9%. Today, the bond is selling at 110 (i.e., 110% of par value). If the firm’s tax bracket is 30%, what is the current after-tax cost of this debt? 2. Micro Advantage has $5,000,000 preferred stock outstanding that it sold for $24 per share. The preferred stock has a per share par value of $25 and pays a $3 dividend per year. The current market price is $30 per share. The firm’s tax bracket is 30%. What is the after-tax cost of the preferred stock? 3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has 50,000 shares of common stock outstanding that has a par value of $10 per share and a current market price of $170 per share. The…arrow_forwardKrystian Inc. issued 12-year bonds with a face value of $110,000 and a stated rate of 5% when the market rate was 7%. Interest was paid semi-annually. A. Calculate the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. NOTE: The requirement is referring to total interest and principal. B. Would an investor be willing to pay more or less than face value for this bond? Less thanarrow_forward
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