On the last day of its fiscal year ending December 31, 2011, the Sedgwick & Reams (S&R) Glass Company completed two financing arrangements. The funds provided by these initiatives will allow the company to expand its operations.
1. S&R issued 8% stated rate bonds with a face amount of $100 million. The bonds mature on December 31, 2031 (20 years). The market rate of interest for similar bond issues was 9% (4.5% semiannual rate). Interest is paid semiannually (4%) on June 30 and December 31, beginning on June 30, 2012.
2. The company leased two manufacturing facilities. Lease A requires 20 annual lease payments of $200,000 beginning on January 1, 2012. Lease B also is for 20 years, beginning January 1, 2012. Terms of the lease require 17 annual lease payments of $220,000 beginning on January 1, 2015. Generally accepted accounting principles require both leases to be recorded as liabilities for the present value of the scheduled payments. Assume that a 10% interest rate properly reflects the time value of money for the lease obligations.

What amounts will appear in S&R's December 31, 2011, balance sheet for the bonds and for the leases?

  • CreatedJune 24, 2013
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