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Ethics and professional conduct in business Solar Industries develops and produces high-efficiency solar panels. The company has an outstanding $10,000,000, 30-year, 10% bond issue dated July 1, 2011. The bond issue is due June 30, 2040. Some bond indentures require the corporation issuing the bonds to transfer cash to a special cash fund, called a sinking fund, over the life of the bond. Such funds help assure investors that there will Ik* adequate cash to pay the bonds at their maturity date. The bond indenture requires a bond sinking fund, which has a balance of $1,200,000 as of July 1, 2016. I "he company is currently experiencing a shortage of funds due to a recent acquisition. Bob Lachgar, the company's treasurer, is considering using the funds from the bond sinking fund to cover payroll and other bills that are coming due at the end of the month. Bob’s brother-in-law, a trustee of Solar’s sinking fund, has indicated a willingness to allow Bob to use the funds from the sinking fund to temporarily meet the company’s cash needs. Discuss whether Bob’s proposal is appropriate.

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Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307

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Chapter
Section
BuyFindarrow_forward

Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307
Chapter 12, Problem 12.2CP
Textbook Problem
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Ethics and professional conduct in business

Solar Industries develops and produces high-efficiency solar panels. The company has an outstanding $10,000,000, 30-year, 10% bond issue dated July 1, 2011. The bond issue is due June 30, 2040. Some bond indentures require the corporation issuing the bonds to transfer cash to a special cash fund, called a sinking fund, over the life of the bond. Such funds help assure investors that there will Ik* adequate cash to pay the bonds at their maturity date.

The bond indenture requires a bond sinking fund, which has a balance of $1,200,000 as of July 1, 2016. I "he company is currently experiencing a shortage of funds due to a recent acquisition. Bob Lachgar, the company's treasurer, is considering using the funds from the bond sinking fund to cover payroll and other bills that are coming due at the end of the month. Bob’s brother-in-law, a trustee of Solar’s sinking fund, has indicated a willingness to allow Bob to use the funds from the sinking fund to temporarily meet the company’s cash needs.

Discuss whether Bob’s proposal is appropriate.

To determine

Bond sinking fund: The fund that is created to repay the principal amount of bonds when they become due is known as bond sinking fund.

To Discuss: Whether Mr. B’s proposal is appropriate.

Explanation of Solution

Mr. B’s proposal is inappropriate. This is because it is unethical to use the sinking fund cash to mitigate the shortage of funds without the consent of the bondholders, even though it is used for temporary purpose. By this, Mr...

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Chapter 12 Solutions

Financial & Managerial Accounting
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Ch. 12 - Alternative financing plans Owen Co. is...Ch. 12 - Alternative financing plans Browser Co. is...Ch. 12 - Issuing bonds at face amount On January 1, the...Ch. 12 - Issuing bonds at face amount On January 1, the...Ch. 12 - Issuing bonds at a discount On the first day of...Ch. 12 - Issuing bonds at a discount On the first day of...Ch. 12 - Discount amortization Using the bond from Practice...Ch. 12 - Discount amortization Using the bond from Practice...Ch. 12 - Issuing bonds at a premium On the first day of the...Ch. 12 - Issuing bonds at a premium On the first day of the...Ch. 12 - Premium amortization Using the bond from Practice...Ch. 12 - Premium amortization Using the bond from Practice...Ch. 12 - Redemption of bonds payable A 1,500,000 bond Issue...Ch. 12 - Redemption of bonds payable A 500,000 bond issue...Ch. 12 - Journalizing installment notes On the first day of...Ch. 12 - Journalizing installment notes On the first day of...Ch. 12 - Number of times interest charges are earned Berry...Ch. 12 - Number of times interest charges are earned...Ch. 12 - Effect of financing on earnings per share Domanico...Ch. 12 - Evaluate alternative financing plans Based on the...Ch. 12 - Corporate financing The financial statements for...Ch. 12 - Bond price United States Steels 7.375% bonds due...Ch. 12 - Entries for issuing bonds Gabriel Co. produces and...Ch. 12 - Entries for issuing bonds and amortizing discount...Ch. 12 - Entries for issuing bonds and amortizing premium...Ch. 12 - Entries for issuing and calling bonds; loss Adele...Ch. 12 - Entries for issuing and calling bonds; gain Emil...Ch. 12 - Entries for installment note transactions On the...Ch. 12 - Entries for installment note transactions On...Ch. 12 - Entries for installment note transactions On...Ch. 12 - Reporting bonds At the beginning of the current...Ch. 12 - Number of times interest charges are earned The...Ch. 12 - Number of times interest charges are earned...Ch. 12 - Number of times interest charges are earned...Ch. 12 - Present value of amounts due Tommy John is going...Ch. 12 - Present value of an annuity Determine the present...Ch. 12 - Present value of an annuity On January 1, 2016,...Ch. 12 - Present value of an annuity Assume the same data...Ch. 12 - Present value of bonds payable; discount Pinder...Ch. 12 - Present value of bonds payable; premium Moss Co....Ch. 12 - Amortize discount by interest method On the first...Ch. 12 - Amortize premium by interest method Shunda...Ch. 12 - Compute bond proceeds, amortizing premium by...Ch. 12 - Compute bond proceeds, amortizing discount by...Ch. 12 - Effect of financing on earnings per share Three...Ch. 12 - Bond discount, entries for bonds payable...Ch. 12 - Bond premium, entries for bonds payable...Ch. 12 - Entries for bonds payable and installment note...Ch. 12 - Bond discount entries for bonds payable...Ch. 12 - Bond premium, entries for bonds payable...Ch. 12 - Effect of financing on earnings per share Three...Ch. 12 - Bond discount entries for bonds payable...Ch. 12 - Bond premium, entries for bonds payable...Ch. 12 - Entries for bonds payable and installment note...Ch. 12 - Bond discount, entries for bonds payable...Ch. 12 - Bond premium, entries for bonds payable...Ch. 12 - General Electric bond issuance General Electric...Ch. 12 - Ethics and professional conduct in business Solar...Ch. 12 - Present values Alex Kelton recently won the...Ch. 12 - Preferred stock vs. bonds Xentec Inc. has decided...Ch. 12 - Financing business expansion You hold a 25% common...Ch. 12 - Number of times interest charges are earned The...

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