Solution to BTN chapter 10 - Reporting in Action BTN 10-1 1...

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Reporting in Action — BTN 10-1 1. Apple does not report any long-term debt as of September 29, 2012. 2. The interest that Apple must pay on $100 million of 4.25% convertible debentures would be: $100,000,000 x 0.0425 = $4,250,000 . 3. Assuming that Apple had $100 million carrying value of convertible bonds that convert into 20,000 shares of stock, the following entry would be recorded upon conversion: Dr Bonds Payable $100 mil. Cr Common Stock $100 mil. Note: Apple’s stock is no par stock and therefore there is no entry required to credit Paid-in-Capital in Excess of Par Value upon conversion. 4. Answer depends on the financial statement information obtained.
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Comparative Analysis — BTN 10-2 1. Apple’s current year debt-to-equity ratio = $57,584 /$118,210 = 0.49 Apple’s prior year debt-to-equity ratio = $39,756 /$ 76,615 = 0.52 Google’s current year debt-to-equity ratio = $22,083 /$71,715 = 0.31 Google’s prior year debt-to-equity ratio = $14,429 /$58,145 = 0.25 2. For both years, Apple’s debt-to-equity ratio is above that of the industry average of 0.44. This implies that its debt levels are more risky than that of its competitors. Conversely, for both years, Google’s debt-to-equity
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Unformatted text preview: ratio is below the industry average of 0.44. This implies that its debt levels reflect a somewhat less risky status than that of its competitors. Of the two companies, Apple has the higher risk level based on this measure. Taking It to the Net — BTN 10-5 1. Home Depot’s long-term liabilities include: Long-Term Debt, excluding current installments. ........... $10,758 million Other Long-Term Liabilities. .............................................. 2,146 million Deferred Income Taxes. ...................................................... 340 million 2 a. These Home Depot notes offer a 5.875% interest rate. If the interest rate for similar notes from companies with similar risk was 5.875%, then Home Depot would have issued these notes at their par value of $3.0 billion. However, since these notes were issued at a discount, the interest rate for similar notes at similar risk must have been greater than 5.875%, causing the notes to have been issued at a discount. b. Cash interest that must be paid: $3,000,000,000 x 0.05875 x ½ year = $88,125,000...
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