Case 8-3 Joan Holtz

1174 WordsFeb 23, 20125 Pages
Joan Holtz (D)* 1. 2010 late-night talk show indicated the existence of an unclaimed municipal bond issued in 1883 by a town in Missouri. The bond was $100 with an interest rate on 10%. At a compound interest, what would be the bonds value in 2010. 2. (a) Joan read that a company issued eight-year, zero-coupon bonds at a price of 327 per 1,000 par value. The question asked, was the yield on these bonds 15 percent, as Joan had calculated. Yes! (b) Assuming that bond discount amortization is tax deductible by the issuing corporation that has a .40 percent income tax rate, using a straight-line amortization of original discount is permissible. What is the effective or “true” after –tax interest rate to the issuer?…show more content…
* Alternative C will show the second highest revenue and net income. Some of the revenue and most of the income from the extended warranty contract will be recognized immediately. * The balance sheet for alternative C will show the second highest retained earnings. Some of the revenue and most of the income from the extended warranty contract will be recognized immediately. There will be a deferred revenue liability that will increase each year because we have assumed steadily growing sales. * Alternative A will show the lowest revenue and the lowest net income. All of the extended warranty revenues and the associated high warranty profits are deferred. * On the balance sheet, Alternative A will show the smallest retained earnings and the largest deferred revenue liability. * The net effect on the cash flow statement is the same for each of the three alternatives. * A lower net income will be adjusted by a higher deferred revenue to reveal the same impact on cash. Which alternative provided the most appropriate representation of the profitability of extended warranties? To account for the combined purchase of the projection TV and a three-year warranty, Joan Holz introduced three alternatives to claim extended warranty revenue. They are as follows: * Alternative A utilized the full deferral method. In doing so, the purchase of the projection TV and the purchase of the warranty contract were to be treated completely
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