Project #26955 - Financial accounting

 

Profit Planning- Long term liabilities h/w

 

 

1.         Mandalay Bay Group decides it needs to remodel one of its Las Vegas casinos,     and so decides to raise cash by issuing $2,000,000 face value, 10-year, 10% face     interest, coupon bonds which pay interest semi-annually each June 30 and         December 31.

           

            The bonds are sold in the open market on January 1, 20X1, at which time the         market rate of interest on similar bonds is 12%.

 

            Calculate the issuance price of the bonds at January 1, 20X1 (Note: answers may   vary slightly due to rounding).

 

            A.        $1,770,592      B.        $1,650,560      C.        $1,385,460      D.  $1,690,980

 

 

 

 

2.         Mandalay Bay Group decides it needs to remodel one of its Las Vegas casinos,     and so decides to raise cash by issuing $2,000,000 face value, 10-year, 10% face     interest, coupon bonds which pay interest semi-annually each June 30 and         December 31.

           

            The bonds are sold in the open market on January 1, 20X1, at which time the         market rate of interest on similar bonds is 12%.

 

            Completely independent to your solution for question #1 above, assume the           $2,000,000 face value bonds were issued for $1,800,000 (to yield 12%       compounded semi-annually).

 

            Which one of the following statements is correct (true) about the journal entry       needed to record the first interest payment on June 30, 20X1 (make the JE needed      to help if necessary)?

 

            A.        Interest Expense will be debited $90,000

            B.        Cash will credited $90,000

            C.        Discount on Bonds Payable will be credited $8,000

            D.        Cash will be credited $120,000

 

 

 

3.         On November 28, 20X2, the market quote for Force Company 6.5% coupon          bonds maturing on December 31, 20X6 was 97.65.

 

            Which one of the following statements is correct (true)?

 

            A.        These bond would be reported as a “current liability” on Force Company’s                         December 31, 20X2 balance sheet.

            B.        If you desired to purchase a $1,000 face value bond on November 28,                                20X2, you would pay $1,000

            C.        The bonds are selling at a premium on November 28, 20X2

            D.        The market rate of interest is greater than 6.5% on November 28, 20X2

 

 

4.         On January 1, 20X1, CD Incorporated issues/sells $200,000 face value, 8-year,      zero coupon bonds at a time when the market rate of interest on similar bonds is      12% compounded annually.

 

            Calculate the issuance price of the bonds. [note: answers may vary slightly due to rounding]

 

            A.        $130,084         B.        $80,776           C.        $124,190         D.    $119,222

 

 

5.         On January 1, 20X1, CD Incorporated issues/sells $200,000 face value, 8-year,      zero coupon bonds at a time when the market rate of interest on similar bonds is      12% compounded annually.

 

            Assume the bonds were issued for $120,000 and that only annual AJEs, at each     December 31, are made for the bonds.

 

            Which one of the following statements is correct (true) with respect to the CD       Incorporated bonds?

 

            A.        Interest Expense will be included in “G&A expenses” on the multiple step                                     income statements prepared each year.

            B.        As time passes, the AJE made at each December 31, will include a greater                          amount of interest expense than did the prior AJE.

            C.        On the date the bonds mature the carrying value of the bonds will equal                             $224,000 [$200,000 + 12% * $200,000]

            D.        As time passes the carrying value of the bonds decreases.

 

 

 

 

 

 

 

 

 

 

6.         Refer to table #3 (p. 11) above.

Which one of the following is the main reason that the Alpha Natural Resources Inc. bonds has a much higher YTM % (10.015%) then do the other 4 bonds included in the table?

 

            A.        The price is less than 100

B.        The Fitch Rating is a “B”, which is much lower than the other bond’s ratings.

C.        The coupon is 9.75%, which is much higher than the other bonds.

D.        The time to maturity is longer than the other bonds.

 

 

7.         Refer to table #3 (p. 11) above.

Assume that at the next FOMC [Federal Open Market Committee] meeting of the Federal Reserve Board the Fed decides inflation is increasing at too rapid of a rate and thus they have decided they will begin to raise interest rates.

Which one of the following statements is correct with respect to the effect this will more than likely have on the Bank of New York bond [and all of the bonds in that table] the day or two after this meeting?

 

A.        The coupon rate of 1.350% will increase

B.        If sold, the YTM to the buyer will be greater than the current 1.650%

C.        The Fitch Ratings will decline.

D.        The price will decrease below the current price of 98.86

 

 

8.         Which one of the following statements is correct (true)?

 

            A.        If the debt-to-asset ratio is less than one, paying off $50,000 of accounts                            payable would cause this ratio to increase

            B.        An increasing “times interest earned ratio” would be considered a                                       favorable trend.

            C.        An increasing "debt-to-assets" ratio would be considered a favorable                                  trend.

            D.        The “times interest earned ratio” mainly indicates a company’s ability to                             pay its debts as they come due.

 

 

Subject Business
Due By (Pacific Time) 04/11/2014 12:00 am
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