Assume that on December 31, 2010, The Coca-Cola Company borrows money from a consortium of banks by issuing a $900 million promissory note. The note matures in four years on December 31, 2014, and pays 3 percent interest once a year on December 31. The consortium transfers $867.331 million (rounded) to Coca-Cola, implying that the bank expects a 4 percent return on the note.
a. Use the template below to show the financial statement effects of
(1) The December 31, 2010 issue
(2) The December 31, 2011 interest payment and interest expense accrual
(3) The December 31, 2012 interest payment and interest expense accrual.
b. Assume that events involving foreign operations have increased the risk of The Coca-Cola Company to the point where creditors expect a 5 percent return on the note as of December 31, 2012. What amounts would Coca-Cola report for long-term debt?
(1) On the face of its December 31, 2012 balance sheet
(2) In the notes to the financial statements?
c. In addition to the information in Part b, assume that The Coca-Cola Company has chosen the fair value option for the reporting of this note. What amounts would Coca-Cola report for long-term debt?
(1) On the face of its December 31, 2012 balance sheet
(2) And on the income statement with respect to the note's fair valuechange?