Week 5 class 2

Week 5 class 2 - Week 5 class 2 (20-25 min.) Req. 1 E 8-18...

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Week 5 class 2 (20-25 min.) E 8-18 Req. 1 Millions Bonds payable, 5 3/8%………………………. . 125 Bonds Payable, 9%……………………. . 75 Cash………………………………………. 13 Gain on Retirement of Bonds Payable…………………… 37 Req. 2 (Dollar amounts in millions) Old Bonds New Bonds Annual interest expense…. . $125 × 0.05375 $75 × 0.09 = $6.72 = $6.75 Req. 3 Possible reasons for the debt refinancing: 1. To decrease annual interest expense: NO, because annual interest expense on the new bonds is greater than interest expense on the old bonds. 2. To increase net income: YES, because the gain on retirement of bonds payable added $37 million to net income (a very low $6.5 million on sales of $1 billion). 3. To decrease the debt ratio: YES, as follows: (Dollar amounts in millions) Before Refinancing After Refinancing Debt = Total liabilities = $360 $360 – $125 + $75 ratio Total assets $500 $500 – $13 = 0.72 = 0.64
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(40-50 min.) P 8-7A Req. 1 (amortization table) A B C D E Seminannual
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This note was uploaded on 10/18/2010 for the course ACF ACC220 taught by Professor Fiona during the Spring '08 term at Seneca.

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Week 5 class 2 - Week 5 class 2 (20-25 min.) Req. 1 E 8-18...

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