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Final-Solutions - Part I 28 points 1(12 points Record all...

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Part I – 28 points 1. (12 points) Record all journal entries Safeway expects to make related to leases in 2003 . Capital Leases: Operating Leases: 2. What is the implicit interest rate on capital leases for 2003? (4 points) From Footnote F: Interest Expense / PV of Capital Lease Obligations = (79.7 – 25.2) / 537.5 = 10.1395% Account Debit Credit Interest Expense Lease Obligation/Liability Cash * 79.7 – 25.2 ** Footnote F *** Footnote F Depr/Amort Expense Acc Depr/Amort * From assumptions given 54.50* 25.2 ** 23.7* 79.7*** 23.7 Account Debit Credit Lease/Rent Expense Cash * From Footnote F 341.70 * 341.7
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3. (21 points) Assume Safeway treated all operating leases as capital leases as of the beginning of 2003. Assume that at the beginning of 2003 the present value of Safeway’s operating lease payments is $2,175 million and that the current obligation of that amount is $125 million. Further, assume that the property under these leases will be amortized on a straight-line basis over 20 years. Identify how each of the following would change by noting INCREASE, DECREASE or NO EFFECT, and the enter the dollar amount of the change: INCREASE or DECREASE or NO CHANGE $ Amount As of the beginning of 2003: Total Current Assets No Change N/A Property, gross Increase 2,175 Accumulated Depreciation No Change N/A Total Current Liabilities Increase 125 Total Long-term Liabilities Increase 2050 (2175-125) During the period ending 2003: Net Income Increase 16.25 (341.7 – (341.7-125 + 2175/20) Cash from Operations Increase 125 (341.7 – (341.7-125)) Cash from Investing No Change N/A Cash from Financing Decrease 125 (0-125) Over the life of the lease: Interest Expense Increase 1938.10 (4113.1 – 2175) Net Income No Change N/A
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1 Part II – 17 points Refer to the financial statements for Intel Corporation contained in the separate booklet. Ignore the impact of taxes in this question. Answer in millions of dollars. 1. How much cash was paid to repurchase common stock in fiscal 2002? (2 points) Full Credit: 4,014 (From Statement of Cash Flows) 2. What was the average price of the stock repurchased in fiscal 2002? (2 points) From Footnote 4 or Consolidated Statements of Stockholders’ Equity: 4,014 / 183 = $21.93 / share 3. What was the journal entry for the repurchase of common stock by Intel in fiscal 2002? (Note that the treasury stock was retired when it was repurchased). (3 points) Full credit: From Consolidated Statements of Stockholders’ Equity: Dr Common Stock and Capital in Excess of Par 2,127 Dr Retained Earnings 1,887 Cr Cash 4,014 Partial credit: Dr Treasury Stock 4,014 Cr Cash 4,014 OR Dr Treasury Stock 2,127 Cr Cash 2,127
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2 4. What was the dividend payout ratio for fiscal 2002? (Divend payout ratio is dividends paid divided by net income) (3 points) Dividends paid / Net Income = 533 / 3,117 = 0.171 5. What is the average exercise price of options that were exercised in fiscal 2002? (4 points) From Consolidated Statements of Stockholders’ Equity 681 / 68 = $10.015 per share 6. What was the journal entry for stock option related expense in fiscal 2002?
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