The following information was taken from the financial statements of ALZA Corporation. Note 6: Borrowings On July

Question:

The following information was taken from the of ALZA Corporation.
Note 6: Borrowings
On July 28, 2000, ALZA completed a private offering of the 3% Zero Convertible Subordinated , which were issued at a price of $551.26 per $1,000 principal amount at At December 29, 2002, the outstanding 3% had a total principal amount at of $1.0 billion with a yield to of 3% per annum, computed on a semiannual bond equivalent basis... . At December 29, 2002, the fair value based on quoted market value of the 3% was $813 million....

Required:
1. ALZA issued zero debentures with a total value of $1.0 billion at a price of $551.26 per $1,000 principal amount at How much cash did the company receive when it issued these debentures?
2. The debentures mature in 20 years from the date of issuance, but no interest payments are made until Show that the issue price of $551.26 gives investors a 3% yield to Suppose that the debentures were issued on January 1, 2000, instead of July 28, 2000.
Reproduce the journal entries ALZA would record in 2000 for the debentures. For each cash entry indicate whether the cash increase or decrease represents an operating, investing, or financing activity.
4. Explain why the debentures have a market value of $813 million at the end of 2002, almost $300 million more than the 2000 issue price.

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