### Does the transaction increase net income

Assignment Help Finance Basics
##### Reference no: EM131521996

Question: Adrenaline Entertainment is struggling financially and its CFO, David Plesko, is starting to feel the heat. Back on January 1, 2010, Adrenaline Entertainment issued \$100 million of 6% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. The market interest rate on the date of issue was 5%. It is now the end of 2014, and David has a plan to increase reported net income in 2014. The market interest rate has risen to 9% by the end of 2014. David wants to retire the \$100 million, 6% bonds and reissue new 9% bonds instead.

Required: 1. Show that the bonds originally were issued on January 1, 2010, for \$110,465,146.

2. Calculate the carrying value of the bonds five years later on December 31, 2014. ( Hint: Use a market rate of 2.5% (5% ÷ 2), and the number of periods is now 20 semiannual periods.)

3. Calculate the market value of the bonds five years later on December 31, 2014. ( Hint: The market rate is now 4.5% (9% ÷ 2) rather than 2.5% (5% ÷ 2), and the number of periods is now 20 semiannual periods.)

4. Record the early retirement of the bonds on December 31, 2014. Does the transaction increase net income? By how much (ignoring any tax effect)?

5. Is David Plesko's plan ethical? Do you think investors would agree with David Plesko that the retirement of the 6% bonds and the reissue of 9% bonds is a good idea? Explain why or why not.

### Write a Review

#### Describe the three main types of business activities

Name and describe the three main types of business activities.- Define the words assets, liabilities, and stockholders' equity. How are the three words related?

#### Ascertain the quality 10 years subsequently of a store

Ascertain the quality 10 years subsequently of a store of Rs.20,000 made today if the interest rate is (a) 4 percent, (b) 6 percent, (c) 8 percent, and (d) 9 percent.

#### Senior management at candoo graphics has numerous

senior management at candoo graphics has numerous administrative and client problems. in the past the company assigned

#### Compute the earnings per share for each company

Assume that the only change to shareholders' equity during 2012 is due to net income earned in 2012.

#### What is the npv for each project

The Allied Group is considering two investments. The first investment involves a packaging machine, which can be used to package garments for shipping orders to customers. The second possible investment would be a molding machine that would be use..

#### Provide background information about the agency and mission

Provide background information about the agency, mission, goals, objectives, departments, and strategic plan. (Title this section Introduction.)

#### Cost accounting system

Write a 700-1,000-word paper identifying the specific cost accounting system your organization utilizes and how it uses the accounting information for financial management. Your paper must include the following:

#### Computation of annuity

A individual has accumulated some wealth in a self-administered stock market investment fund and now wants to cash in (or liquidate) a part of this fund and use it to purchase an annuity from an insurance company that will pay her \$65,000 annually..

#### What are the various ways to determine what variables

how does a multiple regression compare with a simple linear regression?what are the various ways to determine what

#### Calculate ending inventory using fifo

Using LIFO, calculate (a) ending inventory, (b) cost of goods sold, (c) sales revenue, and (d) gross profit.

#### Money has time value

money has time value

#### What was the times interest earned ratio

Assuming a 35 percent income tax rate, what was the times interest earned ratio? (Round your answer to 2 decimal places (e.g., 32.16).)