Problem 7-40 (LO. 3, 5)Mila purchased a Zaffre Corporation $100,000 bond 10 years ago for its face value. The bond pays 5% interest annually. In a "Type E"reorganization, Zaffre exchanges Mila's bond, with 10 years remaining, for a 15-year bond also having a face value of $100,000 but paying4.5% annual interest. Mila earns a 3% after-tax rate of return, and she is in the 25% state and Federal income tax bracket for all years.Determine if this is an equitable exchange for Mila by completing the computations in the table below. Then, indicate if the exchange is or isnot beneficial to Mila.When required, round your answers to the nearest dollar. If an amount is zero, enter "0".Click here to access the present value tables.Present value of the face value of bondPlus: Present value of interest payment, net of taxTotal net present value of bond10-Year Bond15-Year Bond74,41064,190XBased on net present value of the two bonds, the exchange is notbeneficial to Mila.Xx

To determine if the exchange is equitable for Mila, we need to calculate the present value of both…

Answered: Problem 7-40 (LO. 3, 5) Mila purchased…

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter7: Corporations: Reorganizations

Section: Chapter Questions

Problem 39P

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8 Company A invests in a $55 million bond. It was purchased at par and is accounted for using amortized cost. At year-end Company A believes that there is a 5% the company will not collect 50% of the face value over its life. Company A uses the expected loss impairment model. Discuss any financial reporting issues (should we recognize them or not recognize them) and provide any recommendations on how to handle this situation.
5. The Acme Insurance Company purchased a 5-year bond whose interest rate floats with LIBOR. Specifically, the interest rate in a given year is equal to LIBOR plus 200 basis points. At the same time the insurance company purchases this bond, it enters into a floor agreement with the Bear Stearns in which the notional amount is $35 million with a strike price of 6%. The premium Acme Insurance Company agrees to pay Bear Stearns each year is $300,000 a) Suppose at the time that it is necessary to determine whether a payment must be made by Bear Stearns, LIBOR is 9%. How much must Bear Stearns pay to Acme Insurance Company? b) Suppose at the time that it is necessary to determine whethera payment must be made by Bear Stearns, LIBOR is 3%. How much Bear Stearns pay to Acme Insurance Company? show formula and solutions
Help please 13) Willis owns 60% of Yonex. On January 1, 2011 Yonex has bonds payable outstanding of $6,000,000 and a bond discount account with a debit balance of $500,000. On that date Willis purchases all outstanding bonds for a price of $5,600,000. How much is the gain or loss on the in substance defeasance (early "retirement") of the bonds? Thank you
Bad account inc. sold $10000000, 5 year, 3%, semi-annual bonds for $9124794 on Jan 1, 2022. From its proceeds bad accountants paid legal fees of $200000 to Good Lawyers. The market rate for similar bonds is 5%. The bonds pay interest semi-annually on June 30th and December 31. How much interest expense would bad accountants record at June 30, 2022
Tina Corp. purchased P500,000 face value bonds of Erika Corp. on January 1, Year 1. The terms of the bond require principal payments of P100,000 each year for five years plus interest at 8%. The effective interest for this bond is 8%. The first principal and interest payment is due on December 31, Year 1. Erika made the required payments during Years 2 and 3. Erika began to experience financial difficulties in Year 3, however, which made it necessary for Tina to reassess the likelihood of the loan being collected. On December 31, Y3, Tina determines that only P50,000 of the principal payment will be collected for each of the remaining years, and the interest rate to be collected is reduced from 8% to 5%. What is the impairment loss to be recognized in Y3? 104,064 94,064 86,789 None of the above
On June 30, 2002, Baron had outstanding 8%, P1,000,000 face amount, 15-year bonds maturing on June 30 , 2009. Interest is payable on June 30 and December 31. The unamortized balance on June 30, 2002, in the bond discount and bond issue costs accounts were P35,000 and P10,000 respectively. Baron acquired all of these bonds at 94 on June 30, 2002, and retired them. Ignoring income taxes, how much gain should Baron report on this early extinguishment of debt? A. 15,000B. 25,000C. 35,000D. 60,000
ANSWER IN EXCEL FORM THANK YOU On July 1, 2002, AXIE Company purchased Rose Corporation 10-year, 12% bonds with face value of P300,000 for P324,000, which included P12,000 of accrued interest. The bonds, which mature on March 1, 2009, pay interest semi-annually on March 1 and September 1. AXIE appropriately uses the straight line method of amortization. The amount of income AXIE should report for the calendar year 2002 as a result of this long-term investment? P16,200 P17,100 P18,000 P30,000
NYK, Inc.retires a $45 million bond issue when the carrying value of the bonds is $47 million, but the market value of the bonds is $45 million. The entry to record the retirement will include: Select one: a. A credit of $4 million to Gain on Bond Retirement. b. A debit of $4 million to Loss on Bond Retirement. c. No gain or loss on retirement d. A debit of $2 million to Loss on Bond Retirement e. A credit of $2 million to Gain on Bond Retirement.
45 Landis Co. purchased P500,000 of 8%, 5-year bonds (DI@FVTOCI) from Ritter, Inc. on January 1, 2022, with interest payable on July 1 and January 1. The bonds sold for P520,790 at an effective interest rate of 7%. Using the effective-interest method, Landis Co. decreased the Debt Investments account for the Ritter, Inc. bonds on July 1, 2022 and December 31, 2022 by the amortized premiums of P1,770 and P1,830, respectively. At December 31, 2022, the fair value of the Ritter, Inc. bonds was P530,000. What should Landis Co. report as other comprehensive income and as a separate component of equity?
During 20x1 Legion Company issued 10%, $1,200,000 bonds for $1,500,000. Legion retired all of these bonds on March 1, 20x2, at 105. The unamortized bond premium on that date was $126,000. What is the amount of gain or loss should Legion should recognize on this bond retirement?
16. Perez Company sold five-year, 8% bonds on October 1, 2021. The face amount of the bonds was $100,000, while the issue price was $102,000. Interest is payable on April 1 of each year. The fiscal year of Perez Company ends on December 31. How much interest expense will Perez Company report in its December 31, 2021, income statement (assume straight-line amortization)? A. $1900. B. $2,000. C. $1,778. D. $2,040.
2.Max's Company invests in the bonds issued by CarmCorp. On 1/1/20 Max buys $60,000 of 5% bonds that pay interest on 1/1. They mature in 10 years and yield 6%. Max pays $55,584. On 12/31/20, the fair value of the bonds is $60,800. Assuming the bonds are classified as "Trading", prepare the journal entries for 1/1/20, 12/31/20, and 1/1/21. You may omit (leave out) the closing entries.

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