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10-73
ATC 10-2
a.
(1)(a) Cash Proceeds
(1)(b)
Interest Paid:
(1)(c)
Interest Expense = Interest paid +/− amortized discount/premium.
Amortization of premium or discount:
Car, Inc.: Premium amortization = $2,250 5 = $450 per year.
(2)
December 31, 2016
Car
Kim
Jay
Liabilities
Bonds Payable
$100,000
$100,000
$100,000
Less: Discount on Bonds
Payable
(1,600)
Plus: Premium on Bonds
Payable
1,800
3,200
Carrying Value of Bonds Payable
$101,800
$ 98,400
$103,200
10-74
ATC 10-2 (cont.)
c. The amount of interest expense is different for each of the three
companies because the issue price was different; consequently the
10-75
ATC 10-3
Students should be reminded that the analysts at Standard & Poor’s have had a lot
more information upon which to base their ratings than is presented in the
textbook. The credit ratings and the company to which each relates are as follow:
AAA = Automatic Data Processing (ADP)
A = Boeing
much about future expectations (will JCP’s losses continue?) as it is
about the current condition of a company’s balance sheet.
The data presented show that the ADP probably is in the best financial
contrition. Its times interest earned is 16 times higher than the next best
company, Boeing, and its return on assets ratio and debt to assets ratios
10-76
ATC 10-4
a. Sonic Corporation, dollar amounts in thousands.
2013
2012
Net Income
$36,701
$36,085
Interest Expense
29,098
31,608
Income Tax Expense
19,598
21,877
EBIT
$85,397
$89,570
10-77
ATC 10-5
a. Dollar amounts in thousands.
Jos. A.
Banks
Men’s
Wearhouse
Net Income
$ 79,696
$132,063
Interest Expense
26
1,544
Income Tax Expense
49,147
65,609
EBIT
$128,869
$199,216
10-78
ATC 10-6
a.
Mack Company
Selected Financial Statements for 2016
Type of Financing
Debt
Equity
Income Statement
Rental Revenue ($50,000 x .15)
$7,500
$7,500
Interest Expense
(5,000)
-0-
Net Income Before Tax
2,500
7,500
Income Tax Expense (30%)
(750)
(2,250)
Net Income After Tax
$1,750
$5,250
Statement of Cash Flows
Cash Flows From Operating Activities
Receipts from Revenue
$7,500
$7,500
Paid for Interest Expense
(5,000)
-0-
Paid for Tax Expense
(750)
(2,250)
Net Cash Flow from Operating Activities
1,750
5,250
Cash Flows from Investing Activities
-0-
-0-
Cash Flows From Financing Activities
Proceeds from Bond Issue
50,000
-0-
Proceeds from Issue of Stock
-0-
50,000
Payment of Dividends
-0-
(5,000)
Net Cash Flow from Financing Activities
50,000
45,000
Net Change in Cash
51,750
50,250
Add, Beginning Cash Balance
-0-
-0-
Ending Cash Balance
$51,750
$50,250
10-79
ATC 10-6 (cont.)
b. The students should explain that the net income will be higher under
10-80
ATC 10-7
a. Forecast Statements
Financial Statements
Forecast
1
Forecast
2
Forecast
3
Income Statements
Revenue
$120,000
$160,000
$160,000
Operating Expenses
(70,000)
(77,000)
(77,000)
Income Before Interest and Taxes
50,000
83,000
83,000
Interest Expense
-0-
-0-
(11,620)
Income Tax Expense (30%)
(15,000)
(24,900)
(21,414)
Net Income
$ 35,000
$ 58,100
$ 49,966
Statements of Changes in Stockholders’ Equity
Beginning Retained Earnings
$15,000
$15,000
$15,000
Plus: Net Income
35,000
58,100
49,966
Less: Dividend to Watson
-0-
(11,620)
-0-
Ending Retained Earnings
$50,000
$61,480
$64,966
Balance Sheets
Assets (see Note 1 below)
$400,000
$511,480
$514,966
Liabilities
$ -0-
$ -0-
$100,000
Stockholders’ Equity
Common Stock
350,000
450,000
350,000
Retained Earnings
50,000
61,480
64,966
Total Liab. And Stockholders’ Equity
$400,000
$511,480
$514,966
10-81
ATC 10-7 (cont.)
b. The difference in retained earning between forecast 2 and 3 is:
Forecast 3
−
Forecast 2
=
Difference
Ret. Earnings
$64,966
−
$61,480
=
$3,486
10-82
ATC 10-8
This solution is based on the Union Pacific’s Form10-K for the fiscal year
ended December 31, 2013, and dollar amounts are in millions.
a. Total liabilities $28,506
were 2.4 times greater than those for capital leases ($4,066 ÷ $1,702).
If the operating lease payments had to be included in liabilities, this
