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22 Jul 2019

Analyzing and Reporting Financial Statement Effects of BondTransactions On January 1, 2012, Trueman Corporation issued$500,000 of 20-year, 11% bonds for $462,384, yielding a market(yield) rate of 12%. Interest is payable semiannually on June 30and December 31.

(a) Confirm the bond issue price. (Use a financial calculator orExcel to compute. Round answers to the nearest whole number.)Present value of principal repayment =$Answer 0 Incorrect Presentvalue of interest payments =$Answer 0 Incorrect Selling price ofbonds =$ 462,384

(b) Indicate the financial statement effects using the templatefor (1) bond issuance, (2) semiannual interest payment and discountamortization on June 30, 2012, and (3) semiannual interest paymentand discount amortization on December 31, 2012. (Round answers tothe nearest whole number.)

Please explain the answer

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Nestor Rutherford
Nestor RutherfordLv2
22 Jul 2019

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Analyzing and Interpreting Footnote on Operating and Capital Leases

Assume Verizon Communications, Inc., provides the following footnote relating to its leasing activities in its 10-K report. The aggregate minimum rental commitments under noncancelable leases for the periods shown at December 31, 2010, are as follows:

Years (dollars in millions) Capital Leases Operating Leases
2011 $ 83 $ 1,449
2012 71 1,316
2013 67 1,056
2014 63 806
2015 46 527
Thereafter 161 1,937
Total minimum rental commitments 491 $ 7,091
Less interest and executory costs (89)
Present value of minimum lease payments 402
Less current installments (46)
Long-term obligation at December 31, 2010 $ 356


(a) Confirm that the implicit discount rate for Verizon's capital leases is 5.01%.

N 0 1 2 3 4 5 6 7 8 9
Amount Answer Answer Answer Answer Answer Answer Answer Answer Answer Answer
IRR Answer %


(b) What effect does the failure to capitalize operating leases have on Verizon's balance sheet? Over the life of its leases, what effect does this lease classification have on net income?

There is no effect on the balance sheet and income statement as a result of the classification of leases.

Total assets and total liabilities are higher than if the operating lease had been classified as a capital lease. Over the lease term, total rent expense under operating leases will be equal to the interest and depreciation expense that the company would record under capital leases.

Total assets and total liabilities are lower than if the operating lease had been classified as a capital lease. Over the lease term, total rent expense under operating leases will be equal to the interest and depreciation expense that the company would record under capital leases.

Total assets and total liabilities are lower than if the operating lease had been classified as a capital lease. Over the lease term, total rent expense under operating leases will be greater than the interest and depreciation expense that the company would record under capital leases.

1.00 points out of 1.00



(c) Compute the present value of Verizon's operating leases, assuming an 5.01% discount rate and rounding the remaining lease term to 3 decimal places. (Use a financial calculator or Excel to compute. Do not round until your final answers. Round each answer to the nearest whole number.)

($ millions) Present Value
Year 1 Answer
Year 2 Answer
Year 3 Answer
Year 4 Answer
Year 5 Answer
After 5 Answer
Total* Answer

* (Use subsequent rounded answers for calculation.)


Which of the following statements best describes how we might use this additional information in our analysis of the company?

To assess the company's financial condition and performance, we might add the present value of its operating leases to both operating assets and nonoperating liabilities. No adjustment is necessary for the income statement.

To assess the company's financial condition and performance, we might add the sum of the contractual payments under the operating leases to both assets and nonoperating liabilities, and we can replace rent expense with the depreciation of the lease assets and the interest on the lease liability.

To assess the company's financial condition and performance, we might add the present value of its operating leases to both operating assets and nonoperating liabilities, and we can replace rent expense with the depreciation of the lease assets and the interest on the lease liability.

Verizon's balance sheet and income statement are prepared in accordance with GAAP. No adjustments are necessary to evaluate the financial condition of the company.

1.00 points out of 1.00

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