INTERNATIONAL ACCOUNTING LL W/CONNECT
5th Edition
ISBN: 9781264100293
Author: Doupnik
Publisher: MCG
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Chapter 5, Problem 36EP
a.
To determine
Calculate the book value of the loan and interest income of the loan is classified as stage one.
b.
To determine
Calculate the book value of the loan and interest income of the loan is classified as stage two.
c.
To determine
Calculate the book value of the loan and interest income of the loan is classified as stage three.
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ABC Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $273,446 deficit and a 40% chance for no deficit at all. The line of credit charges 0.52% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 9% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your answer to the nearest dollar. (Hint: Refer to a numerical example in short-term financing choices.)
Group of answer choices
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The CFO of Kendrick Enterprises, is evaluating a 10-year, 7.6 percent loan with gross proceeds of $6,400,000. The interest payments on the loan will be made annually. Flotation costs are estimated to be 2.7 percent of gross proceeds and will be amortized using a straight-line schedule over the 10-year life of the loan. The company has a tax rate of 23 percent and the loan will not increase the risk of financial distress for the company. a. Calculate the net present value of the loan excluding flotation costs. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Calculate the net present value of the loan including flotation costs.
Summit Record Company is negotiating with two banks for a $134, 000 loan. Fidelity Bank requires a compensating balance of 18 percent, discounts the loan, and wants to be paid back in four quarterly payments. Southwest Bank requires a compensating balance of 9 percent, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated rate for both banks is 12 percent. Compensating balances will be subtracted from the $134,000 in determining the available funds in part a. a-1. Calculate the effective interest rate for Fidelity Bank and Southwest Bank. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. a-2. Which loan should Summit accept? multiple choice 1 Southwest Bank Correct Fidelity Bank b. Recompute the effective cost of interest, assuming that Summit ordinarily maintains $ 24, 120 at each bank in deposits that will serve as compensating balances. Note: Do not round intermediate calculations. Input…
Chapter 5 Solutions
INTERNATIONAL ACCOUNTING LL W/CONNECT
Ch. 5 - Prob. 1QCh. 5 - Prob. 2QCh. 5 - 3. What is a constructive obligation?
Ch. 5 - Prob. 4QCh. 5 - Prob. 5QCh. 5 - Prob. 6QCh. 5 - Prob. 7QCh. 5 - Prob. 8QCh. 5 - Prob. 9QCh. 5 - Prob. 10Q
Ch. 5 - 11. What are the rules related to the recognition...Ch. 5 - Prob. 12QCh. 5 - Prob. 13QCh. 5 - What are the five steps that entities take to...Ch. 5 - Prob. 15QCh. 5 - Prob. 16QCh. 5 - Prob. 17QCh. 5 - What is breakage revenue?Ch. 5 - What are the three categories of financial assets...Ch. 5 - Prob. 20QCh. 5 - Prob. 21QCh. 5 - What is the primary difference between how IFRS...Ch. 5 - Prob. 23QCh. 5 - Prob. 24QCh. 5 - Prob. 25QCh. 5 - Prob. 26QCh. 5 - Prob. 27QCh. 5 - A cement manufacturer has cement plants around the...Ch. 5 - Prob. 29QCh. 5 - How much revenue must be generated by a companys...Ch. 5 - How is a major customer defined?Ch. 5 - 1. Halifax Corporation has a December 31 fiscal...Ch. 5 - 2. Bull Arm Company has the following items at...Ch. 5 - 3. Melbourne Inc. became involved in a tax dispute...Ch. 5 - Prob. 4EPCh. 5 - Prob. 5EPCh. 5 - Prob. 6EPCh. 5 - Prob. 7EPCh. 5 - 8. Sandoval Company operates in a country in which...Ch. 5 - Which of the following is a criterion that must be...Ch. 5 - Prob. 10EPCh. 5 - Siam Financial Corp. (SFC) actively trades bonds...Ch. 5 - A 3 million loan paying annual interest at a 5...Ch. 5 - Monterrey Properties enters into a 3-year lease...Ch. 5 - 10. An entity must adjust its financial statements...Ch. 5 - Prob. 15EPCh. 5 - Prob. 16EPCh. 5 - Prob. 17EPCh. 5 - Prob. 18EPCh. 5 - Prob. 19EPCh. 5 - Prob. 20EPCh. 5 - Prob. 21EPCh. 5 - Prob. 22EPCh. 5 - Prob. 23EPCh. 5 - Prob. 24EPCh. 5 - Prob. 25EPCh. 5 - Prob. 26EPCh. 5 - Prob. 27EPCh. 5 - Prob. 28EPCh. 5 - Prob. 29EPCh. 5 - Prob. 30EPCh. 5 - Prob. 33EPCh. 5 - Prob. 34EPCh. 5 - Prob. 35EPCh. 5 - Prob. 36EPCh. 5 - Prob. 37EPCh. 5 - Prob. 38EPCh. 5 - On January 1, Year 1, Autonomous Systems Ltd....Ch. 5 - Prob. 40EPCh. 5 - Prob. 41EPCh. 5 - Prob. 42EP
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- If Bergen Air Systems takes out a $100,000 loan, with eight equal principal payments due over the next eight years, how much will be accounted for as a current portion of a noncurrent note payable each year?arrow_forwardDel Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of 50,000. First City has offered Hawley the alternatives listed here. Calculate the effective annual interest rate for each alternative. Which alternative has the lowest effective annual interest rate? a. A 12% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year b. A 9% annual rate on a simple interest loan, with a 20% compensating balance required and interest due at the end of the year c. An 8.75% annual rate on a discounted loan, with a 15% compensating balance d. Interest figured as 8% of the 50,000 amount, payable at the end of the year, but with the loan amount repayable in monthly installments during the yeararrow_forwardOn January 1, 2002, Cougar Company received a two-year $500,000 loan. The loan calls for payments to made at the end of each year based on the prevailing market rate at January 1 of each year. The interest rate at January 1, 2002, was 10 percent. Aggie company also has a twoyear $500,000 loan, but Aggie's loan carries a fixed interest rate of 10 percent. Cougar Company does not want to bear the risk that interest rates may increase in year two of the loan. Aggie Company believes that rates may decrease and they would prefer to have variable debt. So the two companies enter into an interest rate swap agreement whereby Aggie agrees to make Cougar's interest payment in 2003 and Cougar likewise agrees to make Aggie's interest payment in 2003. The two companies agree to make settlement payments, for the difference only, on December 31, 2003. If the interest rate on January 1, 2003, is 12 percent, what will be Cougar's settlement payment to/from Aggie? $5,000 payment $10,000 payment…arrow_forward
- Uptown Bank has granted a line of credit of $80,000 with an interest rate of 7.5 percent and a compensating balance requirement of 2.5 percent to Jones Hardware. The compensating balance requirement is based on the total amount borrowed. What is the effective annual interest rate if the firm needs $55,000 for one year to finance its inventory? Group of answer choicesarrow_forwardSummit Record Company is negotiating with two banks for a $151,000 loan. Fidelity Bank requires a 28 percent compensating balance, discounts the loan, and wants to be paid back in four quarterly payments. Southwest Bank requires a 14 percent compensating balance, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated rate for both banks is 10 percent. Compensating balances will be subtracted from the $151,000 in determining the available funds in part a. Calculate the effective interest rate for Fidelity Bank and Southwest Bank. Which loan should Summit accept? Recompute the effective cost of interest, assuming that Summit ordinarily maintains $42,280 at each bank in deposits that will serve as compensating balances. Does your choice of banks change if the assumption in part b is correct?arrow_forwardLast year, Lee Industries decided to restructure some of its debt by paying off one of its short-term loans. To do so, the company borrowed the money one year ago at an interest rate of 10% per year. If the total cost of repaying the loan was $53 million, what was the amount of the original loan?arrow_forward
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