Question

On the last day of its fiscal year ending December 31, 2021, the Sedgwick & Reams (S&R) Glass Company completed two financing arrangements. The funds provided by these initiatives will allow the company to expand its operations. (FV of $1. PV of $1. FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. S&R issued 8% stated rate bonds with a face amount of $115 million. The bonds mature on December 31, 2041 (20 years). The market rate of interest for similar bond issues was 9% (4.5% semiannual rate). Interest is paid semiannually (4.0%) on June 30 and December 31, beginning on June 30, 2022. 2. The company leased two manufacturing facilities. Lease A requires 20 annual lease payments of $350,000 beginning on January 1 2022. Lease B also is for 20 years, beginning January 1, 2022. Terms of the lease require 17 annual lease payments of $370,000 beginning on January 1, 2025. Generally accepted accounting principles require both leases to be recorded as liabilities for the present value of the scheduled payments. Assume that a 10% interest rate properly reflects the time value of money for the lease obligations. Required: What amounts will appear in S&R's December 31, 2021, balance sheet for the bonds and for the leases? (Enter your answers in whole dollars. Do not round Intermediate calculations. Round your final answers to nearest whole dollar amount.) Bond liability Lease A liability Lease B liability

Answer 1

Dear Student , - First part relates to Bond Payable , present value of Bond Interest + Principal amount with help of annuity factor  

Below Question completely based on Bond Interest + Principal amount payable
S&R Glass Company completed Two financing Arrangement
Issued 8% stated rate Bonds with Face Value of $ 115 Mio
The Bonds mature on 31st Dec 2041 ( 20 years)
The market rate of Interest of Bond= 9%( Semi Annual -4.5%)
Interest paid on 30th June + 31st Dec
Need to Calculate Bond Liability
Bond Liability represents = Present value of Interest + present value of Principal Amount
How to derived Interest = Face Value *Coupon rate
115 Mio	11,50,00,000
Interest is paid on 30th June + 31st Dec = 4%( Semi Annual Coupon rate)
Interesting fact is - interest paid on Semi Annual basis , so
period willbe = 20 years *2= 40 years
Discount Factor = 4.5%
Semi Annual Coupon Value		Amnt($)
$ 115 Mio*4%			46,00,000
Present value of Coupon Interest $			8,46,47,288	A
($4600000*Annuity factor sum 18.40
present value of Principal Amount$			1,97,71,801	B
$ 115 Mio * 40th year 4.5% ( rate )
$ 115 Mio * 0.17
Present value of Bond payable			10,44,19,089	(A+B)
Annuity factor - Discount rate -4.5%
1	0.96
2	0.92
3	0.88
4	0.84
5	0.80
6	0.77
7	0.73
8	0.70
9	0.67
10	0.64
11	0.62
12	0.59
13	0.56
14	0.54
15	0.52
16	0.49
17	0.47
18	0.45
19	0.43
20	0.41
21	0.40
22	0.38
23	0.36
24	0.35
25	0.33
26	0.32
27	0.30
28	0.29
29	0.28
30	0.27
31	0.26
32	0.24
33	0.23
34	0.22
35	0.21
36	0.21
37	0.20
38	0.19
39	0.18
40	0.17
Total	18.40

Lease Liability
The company leased two manufacturing Facility
Lease A - require 20 annual Lease payment
Payment amount $ 350,000
Starting from jan 1 ,2022			Present Value of Lease Liability
Assume that Interest rate 10%			Payment amount $	3,50,000	a
Lease start at Jan 1 , 2022			Sum of Annuity Factor( as below)	9.36492	b
		Discount factor
Year -2022	0	1	Present Value of Lease Liability$	3277722	(a*b)
Year -2023	1	0.909090909
Year -2024	2	0.826446281
Year -2025	3	0.751314801
Year -2026	4	0.683013455
Year -2027	5	0.620921323
Year -2028	6	0.56447393
Year -2029	7	0.513158118
Year -2030	8	0.46650738
Year -2031	9	0.424097618
Year -2032	10	0.385543289
Year -2033	11	0.350493899
Year -2034	12	0.318630818
Year -2035	13	0.28966438
Year -2036	14	0.263331254
Year -2037	15	0.239392049
Year -2038	16	0.217629136
Year -2039	17	0.197844669
Year -2040	18	0.17985879
Year -2041	19	0.163507991
Sum of Annuity Factor		9.364920092

The company Lease - B require - annual lease payment of 17 year ( start from 2025) . Lease actual start date year 2022. So 3 year lease amount need to calculate separately . Now

		Discount factor
Year -2025	0	1
Year -2026	1	0.909090909
Year -2027	2	0.826446281
Year -2028	3	0.751314801
Year -2029	4	0.683013455
Year -2030	5	0.620921323
Year -2031	6	0.56447393
Year -2032	7	0.513158118
Year -2033	8	0.46650738
Year -2034	9	0.424097618
Year -2035	10	0.385543289
Year -2036	11	0.350493899
Year -2037	12	0.318630818
Year -2038	13	0.28966438
Year -2039	14	0.263331254
Year -2040	15	0.239392049
Year -2041	16	0.217629136
Sum of Annuity Factor		8.823708642

Lease Payment - $ 370000(a) , Sum of Annuity factor =8.824 (b) . Present Value of lease Liability (a*b) = $ 3264772+3 year lease amount ($ 3264772*(1/1.1^3) =$ 2452872 . Total lease Liability B - $ 24,52,872