# 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.

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.

ASSETS

CURRENT ASSETS

Cash and cash equivalents

\$ 108,340

Trade accounts receivable, net of allowances

2,866,260

Other receivables

62,150

Operating supplies, at lower of average

cost or market

58,630

Prepaid expenses

446,050

Total Current Assets

3,541,430

PROPERTY, PLANT AND EQUIPMENT (at cost)

Land

1,950,000

Buildings and improvements

2,327,410

Equipment

5,015,660

Other equipment and leasehold improvements

1,645,580

total

10,938,650

Accumulated depreciation and amortization

(7,644,430)

Net Property, Plant, and Equipment

3,294,220

OTHER ASSETS

Deposits and other assets

1,000,080

TOTAL ASSETS

\$ 7,835,730

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES

Accounts payable

\$ 972,160

Accrued liabilities

2,071,270

Accrued claims costs

793,620

Federal and other income taxes

19,710

Deferred income taxes

500

Current maturities of long-term debt and

capital lease obligations

50,610

Short-term borrowings

249,250

Total Current Liabilities

4,157,120

LONG-TERM LIABILITIES

Capital lease obligation

54,580

Note Outstanding

3,000,000

Mortgage Outstanding

608,030

Other liabilities

95,860

Total Long-term Liabilities

3,758,470

Total Liabilities

7,915,590

SHAREHOLDERS’ EQUITY (DEFICIT)

Common stock, \$.01 par value; authorized

500,000 shares; issued 231,000 shares

2,310

731,090

Accumulated other comprehensive loss

(113,500)

Retained earnings (deficit)

(639,180)

Treasury stock

(60,580)

Total Shareholders’ Equity (Deficit)

(79,860)

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

\$ 7,835,730

· 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.

# 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.

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.

ASSETS

CURRENT ASSETS

Cash and cash equivalents

\$ 108,340

Trade accounts receivable, net of allowances

2,866,260

Other receivables

62,150

Operating supplies, at lower of average

cost or market

58,630

Prepaid expenses

446,050

Total Current Assets

3,541,430

PROPERTY, PLANT AND EQUIPMENT (at cost)

Land

1,950,000

Buildings and improvements

2,327,410

Equipment

5,015,660

Other equipment and leasehold improvements

1,645,580

total

10,938,650

Accumulated depreciation and amortization

(7,644,430)

Net Property, Plant, and Equipment

3,294,220

OTHER ASSETS

Deposits and other assets

1,000,080

TOTAL ASSETS

\$ 7,835,730

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES

Accounts payable

\$ 972,160

Accrued liabilities

2,071,270

Accrued claims costs

793,620

Federal and other income taxes

19,710

Deferred income taxes

500

Current maturities of long-term debt and

capital lease obligations

50,610

Short-term borrowings

249,250

Total Current Liabilities

4,157,120

LONG-TERM LIABILITIES

Capital lease obligation

54,580

Note Outstanding

3,000,000

Mortgage Outstanding

608,030

Other liabilities

95,860

Total Long-term Liabilities

3,758,470

Total Liabilities

7,915,590

SHAREHOLDERS’ EQUITY (DEFICIT)

Common stock, \$.01 par value; authorized

500,000 shares; issued 231,000 shares

2,310

731,090

Accumulated other comprehensive loss

(113,500)

Retained earnings (deficit)

(639,180)

Treasury stock

(60,580)

Total Shareholders’ Equity (Deficit)

(79,860)

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

\$ 7,835,730

· 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.