1. For each proposed issue, prepare journal entries to record the initial bond sale and the November 30, 2008, interest payment.
2. Explain why the net bond payable changes with each interest payment. For example, explain why the net bond payable for the zero-coupon bond increases from $ 137,252,361 to $ 143,023,822 between May 31, 2008, and November 30, 2008.
3. Why are there different interest rates on the different bonds, even though they mature on the same date? Explain in detail.
4. If LaSalle needed to raise about $ 200 million, approximately how many $ 1,000 zero- coupon bonds would it issue?
5. Suppose CME issued $ 140 million of 8% coupon bonds on May 31, 2008, for $ 138,499,036, as in Exhibit 1(B). Also suppose that on May 31, 2010, immediately after it paid the $ 5.6 million interest payment, CME reacquired the entire bond issue for $ 141,275,000. Show the required journal entry. Show the journal entry if CME instead re- acquired the entire bond issue for $ 137,250,000.
In early 2007, Janet O’Brien, a manager with Andersen Young Consulting, was about to start resolving reimbursement disputes between her state’s nursing home bureau and 525 individual nursing homes for 2005 and 2006. The state, short of funds, failed to audit the homes since 2000, so Ms. O’Brien was ignoring 2001–2004 because of the statute of limitations. She planned to begin by negotiating separately with the administrators of four 100- bed homes later that day. Because nursing homes worked closely with their industry lobbyists, Ms. O’Brien knew that the initial negotiations would set the tone for negotiations with the remaining 521 homes. If Ms. O’Brien and a home failed to reach an agreement, the state would be forced to file a lawsuit against the firm and take the matter to court. Exhibit 1 contains financial statements for those four homes for the year 2005. Under the federal Medicaid program, U. S. and state governments each pay about 50% of nursing home costs for patients who are unable to pay. Each state administers its own plan and sets its own reimbursement rules, subject to federal regulations. This state reimbursed nursing homes for the sum of (1) reasonable and necessary patient care costs, (2) a 7% return on equity, and (3) $ 2.00 per patient per day. However, the total of costs plus allowable profits was limited to a maximum of $ 92.00 per day for each nursing home patient. Administrators were also limited to a $ 125,000 annual salary.