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Mgmt 200 Assignment Soln 4-7-10

Mgmt 200 Assignment Soln 4-7-10 - the call price is...

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Management 200 – Introductory Financial Accounting– Spring 2010 Krannert School of Management - Purdue University Solutions to class assignment for April 7, 2010 Problem 10-4 Redemption of Bonds 1. Redemption price \$200,000 X 1.01 = \$ 202,000 Carrying value \$200,000 + (\$4,500 – \$1,000) = 203,500 Gain on redemption \$ 1,500 2. Redemption price \$200,000 X 1.03 = \$ 206,000 Carrying value \$200,000 + \$3,500 = 203,500 Loss on redemption \$ 2,500 3. The gain or loss on bond redemption should be presented on the income statement. In most cases, the gain or loss on bond redemption should not be considered unusual or infrequent and therefore should not be presented in the section of the statement where extraordinary items are presented. 4. Bonds are redeemed early only if it is advantageous to the issuing firm. However, early redemption is usually not favorable to the investor because it usually means the investor can no longer benefit from a favorable interest rate. To compensate the investor for foregone interest, as well as for the costs and inconvenience involved,

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Unformatted text preview: the call price is normally set at an amount higher than 100. Exercise 10-9 Leased Assets 1. a. The value of the forklift will not appear on the balance sheet. b. The lease payments will appear on the income statement as lease expense. 2a. 2008 Jan. 1 Leased asset 5,001 Lease Liability 5,001 To record signing of lease. \$1,510 X 3.312 (Table 9-4, n = 4, i = 8%) = \$5,001. The leased asset should be recorded at the present value of the payments which is \$5,001, not at \$6,040. b. Dec. 31 Lease Liability 1,110 Interest Expense 400* Cash 1,510 To record lease payment and interest expense. *\$5,001 X 8% = \$400. c. Dec. 31 Depreciation Expense—Leased Asset 1,250 Accumulated Depreciation—Leased Asset 1,250 To record depreciation expense for 2004. \$5,001/4 years = \$1,250. d. Current Liabilities: Lease Liability (current portion) \$1,199 * *(\$5,001 – \$1,110) X 8% = \$311. \$1,510 – \$311 = \$1,199. Long-term Liabilities: Lease Liability \$2,692 ** **\$5,001 – \$1,110 – \$1,199 = \$2,692...
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