Exam 2: Non-Current Financial Liabilities

Why do bonds often include covenants?

Explain the difference between real-return bonds,convertible bonds and perpetual bonds.

Which of the following would be a "non-current liability"?

What are "non-current liabilities"?

Sarah Braun is the owner of Sarah's Shameless Boutique Corp.(SSBC),a newly incorporated company.Sarah believes that she has a great concept but does not have a lot of money to start the business.Sarah is fairly resourceful,though,and has been able to arrange the following: 1.On July 1,2018,SSBC provides a vendor with a $18,500 non-interest-bearing note due on July 1,2019,in exchange for furniture with a list price of $18,100.Sarah Braun guarantees the debt. 2.On August 1,2018,SSBC buys a photocopier listed for $2,900.The office supply store agrees to accept a $800 down payment and a $2,100,three-year note payable at $798 per year including interest at 7% with the first payment due on August 1,2019.The loan is secured by a lien on the photocopier. 3.On September 1,2018,SSBC borrows $15,000 from its bank for working capital purposes.The loan,plus interest at 12% per annum,is due on June 30,2019.SSBC grants the bank a security interest in its accounts receivables and inventory. Unfortunately,SSBC's target audience is a bit more prudish than she anticipated and sales have been slow.While the company was able to retire the bank loan on the due date,it had insufficient cash to pay off the furniture loan.The vendor agrees to accept 2,000 common shares in SSBC in settlement of the obligation.Sarah believed that the shares are worth $20 each,but as this was the first time that SSBC had issued shares to anyone other than Sarah,a fair market price was not yet established. SSBC's year-end is June 30.The company's banker has suggested that an appropriate market rate for SSBC is 12% per annum for loans that mature in one year or less and 14% for loans with longer maturities. Required: a.Prepare journal entries to record: i.The purchase of the office furniture. ii.The acquisition of the photocopier. iii.The receipt of the loan proceeds. iv.Payments and accruals on June 30,2018. v.The retirement of the office furnishings loan on July 1,2018. b.Briefly describe the note disclosure that would be required with respect to the foregoing liabilities.

Which statement is correct about offsetting?

On May 1,2017,SBC INC.buys a photocopier listed for $2,900.The office supply store agrees to accept a $800 down payment and a $2,100,three-year note payable at $798 per year.The company's banker has suggested that an appropriate market rate is 11% per annum for loans that mature in one year or less and 14% for loans with longer maturities.At what amount will the note be recorded at in the accounting records?

On April 15,2017,Cando Inc.sold $10,000,000 of five-year,3% bonds for $9,972,469. From the proceeds,Cando paid its investment bank a $200,000 sales commission. Interest is payable semi-annually on April 15 and October 15.What is the effective rate of interest (round to 2 decimal places)?

Which statement best explains the concept of "leverage"?

Non-current debt instruments exchanged for assets are recognized at:

Contrast the differences between IFRS and ASPE for financial liabilities using the following table:

Which statement is correct about the derecognition of a matured obligation?

Explain the meaning of financial leverage and leveraged buyout.

On May 1,2017,SBC INC.buys a photocopier listed for $2,900.The office supply store agrees to accept a $800 down payment and a $2,100,three-year note payable at $798 per year including interest at 7%.The company's banker has suggested that an appropriate market rate is 11% per annum for loans that mature in one year or less and 14% for loans with longer maturities.At what amount will the photocopier be recorded at in the accounting records?

On May 1,2017,VeryFine LTD.provides a vendor with a $18,000 non-interest-bearing note due on May 1,2018 in exchange for furniture with a list price of $17,400.At what amount will the property be recorded in the accounting records? The company's banker has suggested that an appropriate market rate is 6% per annum for loans that mature in one year or less and 8% for loans with longer maturities.

Sally has to decide between the following two options: 1)take out a student loan of $80,000 and study accounting full time for the next three years.The interest on the loan is 3% per year payable annually.The principle to be paid in full after ten years. "2)study part time and work part time to earn $20,000 per year for the following six years. Once Sally graduates she estimates that she will earn $35,000 for the first three years and $45,000 the next four years. Sally's banker says the market interest for a ten-year horizon is 6%. Required: a.Calculate NPV of the ten-year cash flows of the two options.For simplification assume that all cash flows happen at year end. b.Based on the NPV which of the two options is better for Sally? c.What is the primary benefit of leveraging an investment decision? What are two drawbacks to leveraging an investment decision?"

Describe the three steps for derecognition of a financial liability prior to maturity.

Based on the characteristics provided below,what kind of bond is being discussed? 1.________ permit the issuing company to redeem before maturity. 2.________ are bonds backed by specific collateral such as a mortgage on real estate. 3.________ are unsecured bonds. 4.________ are bonds that do not pay interest and are sold at a discount and mature at face value.

What does an "AAA" credit rating mean?

Offsetting is the practice of showing the net amount of related assets and liabilities on the balance sheet,rather than showing each of the components separately.State and explain the pros and cons of offsetting assets against liabilities.