On January 1, 2006, Jamona Corp. purchased 12% bonds, having a maturity value of $300,000, for $322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2006, and mature January 1, 2011, with interest receivable December 31 of each year. The company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale. The fair value of the bonds at December 31 of each year is as follows:
· 2006 – $320,500
· 2007 – $309,000
· 2008 – $308,000
· 2009 – $310,000
· 2010 – $300,000
Prepare the amortization table on the investment in bond. Prepare the entries on the investment in bond on 1/1/06, the interest revenue and the amortization of the premium on 12/31/07, and the adjustment of the investment position to fair value on 12/31/07.
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2. On January 1, 2007, Jamona Corp. signed a 5-year, noncancelable lease for a machine. The terms of the lease called for Jamona to make annual payments of $8,668 at the beginning of each year, starting January 1, 2007. The machine has an estimated useful life of 6 years and a $5,000 unguaranteed residual value. The machine reverts to the lessor at the end of the lease term. Jamona uses the straight-line method of depreciation for all of its plant assets. Jamona’s incremental borrowing rate is 10%, and the lessor’s implicit rate is unknown.
· Determine how this lease would qualify as a capital lease.
· Prepare the amortization table for the lease and the entries for signing the lease on 1/1/07, the lease payment on 1/1/07, the interest recognition and lease payment for 12/31/07, and the depreciation entry for 12/31/07.
· Prepare appropriate note disclosure.
3.Your company is in financial trouble and is in the process of reorganization. Your manager wants to know
how you will report on restructuring the debt. Use the following information to help with this assignment.
Cash and cash equivalents
Trade accounts receivable, net of allowances
Operating supplies, at lower of average
cost or market
Total Current Assets
PROPERTY, PLANT AND EQUIPMENT (at cost)
Buildings and improvements
Other equipment and leasehold improvements
Accumulated depreciation and amortization
Net Property, Plant, and Equipment
Deposits and other assets
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Accrued claims costs
Federal and other income taxes
Deferred income taxes
Current maturities of long-term debt and
capital lease obligations
Total Current Liabilities
Capital lease obligation
Total Long-term Liabilities
SHAREHOLDERS’ EQUITY (DEFICIT)
Common stock, $.01 par value; authorized
500,000 shares; issued 231,000 shares
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings (deficit)
Total Shareholders’ Equity (Deficit)
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
· As stipulated, your company is having financial difficulty and has asked the bank to restructure its $3 million note
outstanding. The present note has 3 years remaining and pays a current interest rate of 10%. The present
market rate for a loan of this nature is 12%. The note was issued at its face value. The bank agrees to accept
land in exchange for relinquishing its claim on this note. The land has a book value of $1,950,000 and a fair
value of $2,400,000.
Prepare the journal entry on the settlement of the note.
4.The company provides the following information related to its post employment benefits for the year 2007:
o Accumulated postretirement benefit obligation at January 1, 2007 $810,000
o Actual and expected return on plan assets $34,000
o Unrecognized prior service cost amortization $21,000
o Discount rate 10%
o Service cost $88,000
To satisfy various benefit issues that have arisen as a result of the restructuring, new post employment
benefits have been created. The company currently has a defined benefits plan and is considering switching
to a defined contribution plan to save costs. Compute the costs associated with keeping the current plan
versus the costs of a defined contribution plan where the employer pays 3% of payroll. Should the company
switch to a defined contribution plan? (To make decision on this, you need to calculate the INDIFFERENCE
POINT of payroll amount at which the pension cost would be the same between the current defined benefit plan
and the proposed defined contribution plan.
If you use Excel for completing this assignment, please use a separate TAB for each of the 4 problems
and submit only a SINGLE FILE for all 4 problems. If you Word, please organize your answers
sequentially for the requirements of the 4 problems.