On the last day of its fiscal year ending December 31, 2016, the Sedgwick & Reams (S&R) Glass Company completed two financing arrangements. The funds provided by these initiatives will allow the company to expand its operations. 1. S&R issued 8% stated rate bonds with a face amount of $100 million. The bonds mature on December 31, 2036 (20 years). The market rate of interest for similar bond issues was 9% (4.5% semiannual rate). Interest is paid semiannually (4%) on June 30 and December 31, beginning on June 30, 2017. 2. The company leased two manufacturing facilities. Lease A requires 20 annual lease payments of $200,000 beginning on January 1, 2017. Lease B also is for 20 years, beginning January 1, 2017. Terms of the lease require 17 annual lease payments of $220,000 beginning on January 1, 2020. Generally accepted accounting principles require both leases to be recorded as liabilities for the present value of the scheduled payments. Assume that a 10% interest rate properly reflects the time value of money for the lease obligations. Required: What amounts will appear in S&R’s December 31, 2016, balance sheet for the bonds and for the leases?
On the last day of its fiscal year ending December 31, 2016, the Sedgwick & Reams (S&R) Glass Company completed two financing arrangements. The funds provided by these initiatives will allow the company to expand its operations. 1. S&R issued 8% stated rate bonds with a face amount of $100 million. The bonds mature on December 31, 2036 (20 years). The market rate of interest for similar bond issues was 9% (4.5% semiannual rate). Interest is paid semiannually (4%) on June 30 and December 31, beginning on June 30, 2017. 2. The company leased two manufacturing facilities. Lease A requires 20 annual lease payments of $200,000 beginning on January 1, 2017. Lease B also is for 20 years, beginning January 1, 2017. Terms of the lease require 17 annual lease payments of $220,000 beginning on January 1, 2020. Generally accepted accounting principles require both leases to be recorded as liabilities for the present value of the scheduled payments. Assume that a 10% interest rate properly reflects the time value of money for the lease obligations. Required: What amounts will appear in S&R’s December 31, 2016, balance sheet for the bonds and for the leases?
Trending now
This is a popular solution!
Step by step
Solved in 6 steps with 5 images
