Long-Term Debt (F5)

Question 1

Capital Lease Characteristics

Answer 1

1. Ownership transfer at end of lease
2. Bargain purchase option
3. PV of lease payments 90% of Fair value
4. Lease term 75% of useful life

Question 2

Effective Interest

Answer 2

Income Statement: 469,500 * 10% yield = 46,950
Balance Sheet: 500,000 * 9% = 45,000
30,500 - 1,950 = 28,550 discount remaining

Int Exp (Yield/Net) 46,950
Discount 1,950
Cash (Coupon/Face) 45,000

Question 3

Bond Issuance

Answer 3

600,000 * 99% = 594,000 proceeds
600,000 * 10% coupon = 60,000 interest
60,000 * 3/12 april issue = 15,000
594,000 + 15,000 = 609,000 total proceeds

Question 4

Cash receipts

Answer 4

Total bond price + accrued interest - bond issuance costs
1.03 * 200 * 1,000 + .09 * 200 * 1,000 * 2/12 - 10,000
=199,000

Question 5

Discount on Debentures

Answer 5

450,000 sales price - (2,000 warrants @ $10) = 430,000

500,000 face - 430,000 = 70,000 discount

Question 6

Net liability/carrying amount

Answer 6

Bonds payable 2,000,000 - discount 70,000 - bond issue costs 20,000 = 1,910,000

Question 7

Debenture vs serial

Answer 7

Debenture: Unsecured
Serial: Mature at regular intervals
*Debenture can be serial

Question 8

APIC on Conversion

Answer 8

775,000 face - 23,000 unamortized discount= 752,000
752,000 - (90,000 shares * 5 par) = 302,000 APIC

Convertible Bonds 775,000
Discount 23,000
Stock 450,000
APIC 302,000