Financial Reporting Problem -
1. The Procter & Gamble Company (P&G) - The financial statements of P&G are presented in Appendix 5B. The company's complete annual report, including the notes to the financial statements, can be accessed at the book's companion website, www. wiley.com/college/kieso.
Instructions - Refer to P&G's 2011 financial statements and the accompanying notes to answer the following questions.
(a) What cash outflow obligations related to the repayment of long-term debt does P&G have over the next 5 years?
(b) P&G indicates that it believes that it has the ability to meet business requirements in the foreseeable future. Prepare an assessment of its liquidity, solvency, and financial flexibility using ratio analysis.
Comparative Analysis Case The Coca-Cola Company and PepsiCo, Inc.
Instructions - Go to the book's companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc. (a) Compute the debt to assets and the times interest earned ratios for these two companies. Comment on the quality of these two ratios for both Coca-Cola and PepsiCo. (b) What is the difference between the fair value and the historical cost (carrying amount) of each company's debt at year-end 2011? Why might a difference exist in these two amounts? (c) Both companies have debt issued in foreign countries. Speculate as to why these companies may use foreign debt to finance their operations. What risks are involved in this strategy, and how might they adjust for this risk?
2. (Comprehensive Bond Problem) In each of the following independent cases the company closes its books on December 31.
1. Sanford Co. sells $500,000 of 10% bonds on March 1, 2014. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2017. The bonds yield 12%. Give entries through December 31, 2015.
2. Titania Co. sells $400,000 of 12% bonds on June 1, 2014. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2018. The bonds yield 10%. On October 1, 2015, Titania buys back $120,000 worth of bonds for $126,000 (includes accrued interest). Give entries through December 1, 2016.
Instructions
For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective-interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.
3. (Issuance of Bonds between Interest Dates, Straight-Line, Redemption) Presented below are selected transactions on the books of Simonson Corporation.
May 1, 2014 Bonds payable with a par value of $900,000, which are dated January 1, 2014, are sold at 106 plus accrued interest. They are coupon bonds, bear interest at 12% (payable annually at January 1), and mature January 1, 2024. (Use interest expense account for accrued interest.
Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the amortiza- tion of the proper amount of premium. (Use straight-line amortization.)
Jan. 1, 2015 Interest on the bonds is paid.
April 1 Bonds with par value of $360,000 are called at 102 plus accrued interest, and redeemed. (Bond premium is to be amortized only at the end of each year.)
Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized.
Instructions - Prepare journal entries for the transactions above
4. (Entries for Life Cycle of Bonds) On April 1, 2014, Seminole Company sold 15,000 of its 11% 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2015, Seminole took advantage of favorable prices of its stock to extinguish 6,000 of the bonds by issuing 200,000 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company's stock was selling for $31 per share on March 1, 2015.
Instructions - Prepare the journal entries needed on the books of Seminole Company to record the following.
(a) April 1, 2014: issuance of the bonds.
(b) October 1, 2014: payment of semiannual interest.
(c) December 31, 2014: accrual of interest expense.
(d) March 1, 2015: extinguishment of 6,000 bonds.