ANy help with this project would be really appreciated. Even just a start to it$.$ Intermediate $2$ FSR Project Part #$1$: Long$-$term Debt

Goal:

To practice recording long$-$term liabilities and reporting them in the financial statements. $($See Topic

Guides LE $2,4,10).$

Information:

On August $1,$ Saola issued a $$740,$ooo, semi$-$annual, $7$ year, $6\mathrm{.}5\%$ bond. The market rate for similar

bonds on that day was $6\mathrm{.}0\%.$ Saola uses the effective interest method to record the amortization or

premiums and discounts. Saola's management has decided to report net bonds on the balance sheet,

instead of reporting the bond and its premium or discount separately. No entries have yet been made

for the bond.

Saola's management would like to know the effect of your adjustment on the following ratios:

Debt to Equity Ratio $($Total Liabilities $/$ Total Equity$)$

Current Ratio

ROA

Assignment:

Calculations

Make the appropriate journal entries, if any, to account for the new bond and any accrued

interest $($including any necessary changes to income tax expense$).$

Make any necessary changes to the financial statements.

Critical Thinking

Calculate each of the required ratios using the original values $($before any changes$)$ and the

updated values $($after your changes$).$

Issuing this bond has left Saola with a lot of cash on hand. Do you think holding so much

cash is a good decision? What do you think investor's reaction will be to such a high cash

balance? Consider the effect it has had on the three ratios you calculated. Would the changes

improve or reduce investors' perception of Saola? Defend your answer.

Saola's CFO has been concerned about the issuance of this bond. The company really doesn't

need the additional cash at the moment, despite some vague plans to expand in the near

future. The rest of the management team, on the other hand, felt that the additional cash

would allow them to repurchase shares and pay a larger dividend for the period, both of

which would help to calm investors' fears after all of the changes that needed to be made to

the financial statements this period. Provide two $(2)$ arguments that the CFO could have

used to try to talk his colleagues out of issuing the bond.