Non-Current Liabilities

A year ago, a firm issued a 6-yr bond with $1 million face value, with a 5% coupon paid annually.  The effective rate at issuance was 4%.

What was the price of the bond at issuance?

A year ago, a firm issued a 6-yr bond with $1 million face value, with a 5% coupon paid annually.  The effective rate at issuance was 4%.

What is the most likely current book value of the bond liability? (Use the effective interest method)

A year ago, a firm issued a 6-yr bond with $1 million face value, with a 5% coupon paid annually.  The effective rate at issuance was 4%.

What is the recorded amount of cash outflow on the cash flow statement in the first year closest to?

Debbie is choosing between purchasing 2 bonds offered by the same company.

Bond A is a 5-yr, $10,000 par, 4% coupon paid annually.  It is offered at par.

Bond B is a 5-yr, $10,000 par, zero coupon bond.  It is offered at a discounted price of $8,200.

If coupons does not matter to Debbie, and she just wants the highest IRR for the 5 year term, which bond will she most likely pick?

Company A reports under US GAAP, and Company B reports under IFRS.

Both companies issued a $1 million bond with 7% coupon at par value.  Both companies incurred issuance cost of $10,000.

Which of the following is least likely to occur as a result of the bond issue?

To take advantage of the prevailing low interest rates, Tutlis Corp decided to redeem some of its outstanding bonds.  Tutlis paid $9.3 million to redeem the bonds.  The book value of the bonds redeemed was $8.2 million.

What should be the accounting treatment of this transaction?

An airline that reports under IFRS leased an airplane for 10 years. The annual payments of $15 million is to be made each year on the first day of the lease.

The implicit lease interest rate is 7%.  The amount of interest expense recognised by the airline in the first year is closest to:

GammaLease is a vehicle leasing company which refurbishes old trucks to lease out. GammaLease is a US-based company that reports under US GAAP.

Last year, GammaLease refurbished a truck with a total cost of $80,000 to lease to PHZ Transports.  The lease is for 5 years, where PHZ will pay GammaLease $30,000 at the end of each year.  After the final payment, PHZ will own the truck for no additional payment.  The implied interest rate in the lease is 6%.

How should GammaLease account for the lease at inception?

In a review of its defined benefit plan, a firm decided to increase its assumption of life expectancy for males to 80 years, and for female to 85 years.

What is the least likely effect of this change on the firm’s financial statements?

For the last financial year, Moples Corp recorded total revenue of $100,000 and COGS of $40,000.

The interest payments for the year total $8,000.

What is the interest coverage ratio of Moples for the year closest to?