ORIE 3150 practice prelim II answers

ORIE 3150 practice prelim II answers - ORIE 3150...

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ORIE 3150 Name (please print)_____________________________________ Practice Prelim Two Fall 2010 1. Time Value of Money A i i c = ( 29 n i 1 PV FV + = single payment ordinary annuities: - + = i 1 ) i 1 ( A FV n + - = - i ) i 1 ( 1 A PV n annuities due: n 1 (1 i) 1 FV A A i + + - = - ( 29 n 1 (1 i) PV A 1 i i - - + = + ______________________________________________________________ 2. Bonds ( 29 ( 29 n n i 1 FV i i 1 1 A PV + + + - = - The “bond equation” The annual yield for a bond is 2 × i for bonds that pay interest semi-annually. Interest Expense = i × Carrying Value Carrying value must be updated every 6 months when interest is paid. ______________________________________________________________ 3. Leases - The Lease Checklist: 1. The lease transfers ownership to the lessee at the end of the lease term. 2. The lease contains a bargain purchase option 3. The lease term is equal to 75% or more of the estimated economic life of the asset 4. The present value of the lease payments amounts to 90% or more of the fair value of the lease property. If any one is true, it is a capital lease! If none are true, it is an operating lease. For #1 or #2 is true, depreciate over the useful life. For other capital leases, depreciate over the lease term. Interest Expense = i × Lease Obligation Sale-leaseback arrangements may result in a gain or loss. If there is a gain, this is usually amortized over the life of the lease. Losses (very rare) are recognized immediately.
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4. Inventory Impairment Net realizable value (NRV) – equals the estimated selling price in the ordinary course of business less costs of repair, preparation and disposal Net adjusted cost (NAC) – equals the NRV less a normal profit margin (NPM). NAC = NRV – NPM Replacement cost (RC) – replacement of inventory by purchase or reproduction. _______________________________________________________________________ 5. Depreciation (straight line) Historical Cost - Salvage Value Annual Depreciation = Useful Life 1. Boise Cascade Corp. issued a 10-year bond on January 1, 2008. The bond has a face interest rate of 8%, face value of $20,000,000, and pays interest semi-annually. The bond was issued at such a price as to yield 8.42% annually. a. Provide Boise Cascade’s journal entry to record the sale of the bond on January 1, 2008. January 1, 2009 Cash $19,439,675.09 Unamort. Bond Discount 560,324.91 Bond Payable 20,000,000 b. Provide Boise Cascade’s journal entry to record the payment of interest and amortization on June 30, 2008. Use the effective interest method.
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