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239) Western World has the following selected data ($ in millions):
Balance Sheet Data
2021
2020
Total Assets
$2,511
$2,315
Total Liabilities
1,685
1,525
Total Stockholders’ Equity
826
790
Income Statement Data
Sales
$786
Interest Expense
77
Tax Expense
32
Net Income
80
Based on these amounts, calculate the following ratios for Western World in 2021:
1. Debt to equity ratio.
2. Return on assets ratio.
3. Times interest earned ratio.
2.04
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240) Selected financial data for these two close competitors in the home building industry are
provided below:
($ in millions)
Company A
Company B
Total assets
$40,877
$33,005
Total liabilities
21,484
13,936
Total stockholders’ equity
19,393
19,069
Sales
$66,176
$47,220
Interest expense
676
287
Tax expense
1,362
1,042
Net income
2,620
1,783
1. Calculate the debt to equity ratio for Company A and Company B. Which company has the
higher ratio?
2. Calculate the times interest earned ratio for Company A and Company B. Which company is
better able to meet interest payments as they become due?
Company A
Company B
Company A
Company B
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241) On January 1, 2021, Lakeside Amusement Park issues $600,000 of 6% bonds, due in ten
years, with interest payable semi-annually on June 30 and December 31 each year.
Required:
Calculate the issue price of a bond and fill in the blanks to the first three rows of an amortization
schedule when:
1. The market interest rate is 6% and the bonds issue at face amount.
2. The market interest rate is 7% and the bonds issue at a discount.
3. The market interest rate is 5% and the bonds issue at a premium.
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242) Astro World issues $20 million in bonds on January 1, 2021 that pay interest semi-annually
on June 30 and December 31. A portion of the bond amortization schedule appears below:
(1) Date
(2) Cash Paid
(3) Interest
Expense
(4) Increase
in Carrying
Value
(5) Carrying
Value
Face Amount
× Stated Rate
Carrying
Value ×
Market Rate
(3) – (2)
Prior Carrying
Value + (4)
1/1/2021
$17,864,493
6/30/2021
600,000
625,257
25,257
17,889,750
12/31/2021
600,000
626,141
26,141
17,915,891
Required:
1. Were the bonds issued at face amount, a discount, or a premium?
2. What is the original issue price of the bonds?
3. What is the face amount of the bonds?
4. What is the stated annual interest rate?
5. What is the market annual interest rate?
6. What is the total cash paid for interest assuming the bonds mature in 20 years?
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243) On January 1, 2021, Water Mania issues $1,000,000 of 6% bonds, due in ten years, with
interest payable semi-annually on June 30 and December 31 each year.
Required:
1. If the market interest rate is 6%, the bonds will issue at $1,000,000. Record the bond issue on
January 1, 2021, and the first two semi-annual interest payments on June 30, 2021, and
December 31, 2021.
2. If the market interest rate is 7%, the bonds will issue at $928,938. Record the bond issue on
January 1, 2021, and the first two semi-annual interest payments on June 30, 2021, and
December 31, 2021.
3. If the market interest rate is 5% the bonds will issue at $1,077,946. Record the bond issue on
January 1, 2021, and the first two semi-annual interest payments on June 30, 2021, and
December 31, 2021.
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