CS3

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University of Nebraska, Omaha *

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3030

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Accounting

Date

Apr 3, 2024

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xlsx

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file:///var/filecabinet/temp/converter_assets/55/bf/55bf2182baabf47ef7df87304a70d078a94fcf1d.xlsx Directions Case/Simulation #3, Acct 3040 Assignment points available = 25 points Directions: 2) Ace Corporation's debt instruments are described on each of the 5 separate "Debt" sheets. You are required to complete all 5 "Debt" sheets AND THEN summarize your analysis in the "Debt Summary" sheet in this workbook. Pay careful attention to the instructions on each sheet. 3) The 12/31/16 balance sheet and the income statement for the year-ended 12/31/16 provided for you on the "Balance Sheets & Income Stmt" sheet are correct in accordance with US GAAP and provide you with check figures for the 12/31/16 carrying value of debt and interest expense for the year ended 12/31/16. This sheet is protected so that you cannot make changes to it. You do not have any requirements on this sheet. 4) You must prepare a complete statement of cash flows for the year-ended 12/31/16 on the Stmt of Cash Flows sheet in this workbook. Instructions and additional information you need are included on this sheet in the workbook. 5) Your Excel file must be submitted through Canvas. Assignments submitted in any other way earn a score of zero. 6) Name the project file you submit as follows: LastnameCS3. For example, my file name would be ChengCS3. 1) Reminder: THIS IS A CASE/SIMULATION ASSIGNMENT. DO NOT DISCUSS THIS ASSIGNMENT WITH ANYONE OTHER THAN DR.CHENG!!

55bf2182baabf47ef7df87304a70d078a94fcf1d.xlsx Debt1 Name: Majd Alsubhi Debt 1 Requirement 1: Enter your name in cell B1. ACCOUNTING PERIOD DETAILS: Ace's fiscal year ends on December 31st every year. Ace prepares accrual adjusting entries semi-annually, on June 30th and Dec. 31st each year. Ace applies US GAAP for all of its debt instruments and does not use the fair value option. CONTRACT DETAILS FOR DEBT 1: Ace Corp. issued bonds with face value of $250,000 on July 1, 2012. These bonds mature on June 30, 2016 and have a stated interest rate of 8%. These bonds require semi-annual coupon payments on Dec. 31 and June 30 each year. Ace received $250,000 as original principal on 7/1/12 when these bonds were issued. Requirement 2: Fill in the boxes below for these bonds. Market (effective) interest rate for these bonds on 7/1/12: 4% per period Semi-annual annuity payment amount required: 25000*8%/2 100,000 Requirement 3: Prepare the entries that Ace would have prepared for these bonds on the dates below. If no entry is required, state so. Don't forget to account for bond issue costs. Date Account Debit Credit 6/30/2016 interest expense $ 10,000 cash $ 10,000 Bonds payable $ 250,000 cash $ 250,000 12/31/2016 Requirement 4: Go to the Debt Summary sheet in this workbook and complete the cells for Debt 1.

55bf2182baabf47ef7df87304a70d078a94fcf1d.xlsx Debt2 Debt 2 Majd Alsubhi ACCOUNTING PERIOD DETAILS: Ace's fiscal year ends on December 31st every year. Ace prepares accrual adjusting entries semi-annually, on June 30th and Dec. 31st each year. Ace applies US GAAP for all of its debt instruments and does not use the fair value option. CONTRACT DETAILS FOR DEBT 2: Ace Corp. issued bonds with face value of $500,000 on January 1, 2016. These bonds mature on December 31, 2021 and have a stated interest rate of 10%. These bonds require semi-annual coupon payments on June 30 and Dec. 31 each year. The market interest rate for these bonds on 1/1/16 was 8.9%. Ace paid $24,000 of bond issue costs on 1/1/16 related to these bonds. Requirement 1: Fill in the boxes below for these bonds. Face value = 500,000 Semi-annual annuity payment amount required = 25,000 Number of periods (n) = 12 Effective interest rate per period= 4.9700% Cash proceeds borrowed on 1/1/16 = $501,147 Requirement 2: Prepare the entries that Ace would have prepared for these bonds on the dates below. If no entry is required, state so. Don't forget to account for bond issue costs. Date Account Debit Credit 1/1/2016 Cash $ 501,147 Bonds payable $ 501,147 6/30/2016 interest expense 24,928 bonds payable 72 cash 25,000 12/31/2016 interest expense 24,928 bonds payable 72 cash 25,000 Requirement 3: Go to the Debt Summary sheet in this workbook and complete the cells for Debt 2.

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55bf2182baabf47ef7df87304a70d078a94fcf1d.xlsx Debt3 Debt 3 Majd Alsubhi ACCOUNTING PERIOD DETAILS: Ace's fiscal year ends on December 31st every year. Ace prepares accrual adjusting entries semi-annually, on June 30th and Dec. 31st each year. Ace applies US GAAP for all of its debt instruments and does not use the fair value option. CONTRACT DETAILS FOR DEBT 3: Ace Corp. issued bonds with face value of $300,000 on July 1, 2016. These bonds mature on June 30, 2019 and have a stated interest rate of 4%. These bonds require semi-annual coupon payments on Dec. 31 and June 30 each year. Ace received $261,316 as original principal on 7/1/16 when these bonds were issued. Ace's bond issue costs were immaterial for these bonds. Requirement 1: Fill in the boxes below for these bonds. Face value = 300,000 Semi-annual annuity payment amount required = 6,000 Number of periods (n) = 6 Market interest rate per period = 4.50% Cash proceeds (original principal) borrowed on 7/1/16 = 261,316 Requirement 2: Prepare the entries that Ace would have prepared for these bonds on the dates below. If no entry is required, state so. Date Account Debit Credit 7/1/2016 cash $ 261,316 bonds payable $ 261,316 12/31/2016 Interest Expense 11,759 bonds payable 5,759 Cash 6,000 Requirement 3: Go to the Debt Summary sheet in this workbook and complete the cells for Debt 3.

55bf2182baabf47ef7df87304a70d078a94fcf1d.xlsx Debt4 Debt 4 Majd Alsubhi ACCOUNTING PERIOD DETAILS: Ace's fiscal year ends on December 31st every year. Ace prepares accrual adjusting entries semi-annually, on June 30th and Dec. 31st each year. Ace applies US GAAP for all of its debt instruments and does not use the fair value option. CONTRACT DETAILS FOR DEBT 4: On 1/1/16, Ace decided to purchase equipment with a fair market value of $350,000. Ace financed this purchase with the vendor by issuing a loan payable. The loan payable has a face value of $492,243 because that's the amount that Ace is required to pay the vendor on the maturity date of December 31, 2019. No other payments are required on this loan. Requirement 1: Fill in the boxes below for these bonds. Annual annuity payment amount required = 0 Number of periods (n) = 4 (NOTE: Even though Ace prepares semi-annual AJEs, this loan requires annual compounding.) Market interest rate per period = 4.0000% Original carrying value of this NON-CASH LOAN = 350,000 Requirement 2: Prepare the entries that Ace would have prepared for this loan on the dates below. If no entry is required, state so. You must ignore depreciation AJEs for the equipment purchased by this loan. Date Account Debit Credit 1/1/2016 Equipment $ 350,000 loans payable $ 350,000 6/30/2016 Interest Expense at 4% for semi annual period 7,000 loans payable 7,000 12/31/2016 Interest Expense at 4% for semi annual period 7,000 loans payable 7,000 Requirement 3: Go to the Debt Summary sheet in this workbook and complete the cells for Debt 4.

55bf2182baabf47ef7df87304a70d078a94fcf1d.xlsx Debt5 Debt 5 ACCOUNTING PERIOD DETAILS: Ace's fiscal year ends on December 31st every year. Ace prepares accrual adjusting entries semi-annually, on June 30th and Dec. 31st each year. Ace applies US GAAP for all of its debt instruments and does not use the fair value option. CONTRACT DETAILS FOR DEBT 5: On 1/1/16, Ace decided to purchase equipment by issuing an installment loan directly to the equipment vendor (NON-CASH LOAN). This loan has a face value of $1,115,966, a stated interest rate of 5%, and a maturity date of 12/31/20 Based on these contract terms, the annual payment due each 12/31 is $257,760 Upon further investigation, you have determined that the appropriate market interest rate for this loan is 9.1% on 1/1/16. REMEMBER: You cannot change the contractual terms of this loan, but you need to properly account for the SUBSTANCE of this loan. Requirement 1: Fill in the boxes below for these bonds. Lump-sum payment due on the maturity date = 0 (Remember that this is a regular installment loan.) Annual annuity payment amount required = $257,760 (Remember that this is based on the contract terms.) Number of periods (n) = 5 (NOTE: Even though Ace prepares semi-annual AJEs, this loan requires annual compounding.) Market interest rate per period = 9.00% Original carrying value of this NON-CASH LOAN = $1,000,000 Requirement 2: Prepare the entries that Ace would have prepared for this loan on the dates below. If no entry is required, state so. You must ignore depreciation AJEs for the equipment purchased by this loan. Date Account Debit Credit 1/1/2016 Equipment $ 1,000,000 Loan Payable $ 1,000,000 6/30/2016 Interest Expense 45,500 interest payable 45,500 12/31/2016 Interest Expense 45,500 interest Payable 45,500 loans payable 166,760 cash 257,760 Requirement 3: Go to the Debt Summary sheet in this workbook and complete the cells for Debt 5.

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55bf2182baabf47ef7df87304a70d078a94fcf1d.xlsx Debt Summary Name: Majd Alsubhi Debt Summary Sheet Each of the 5 Debt sheets that you have completed in this workbook requires you to complete cells in this worksheet. Note that you must complete columns C through H for each of the 5 debt instruments. Also note that the 12/31/16 Bonds and Loans Payable amount in cell C17 needs to agree with the carrying amount reported on the 12/31/16 balance sheet and the total interest expense amount in cell D17 needs to agree with the interest expense in the income statement for the year ended 12/31/16. Debt Instrument Debt 1 250,000 Debt 2 0 Debt 3 0 Debt 4 0 Debt 5 0 Totals 250,000 CHECK FIGURES: 1,982,465 193,761 762,464 156,852 416,908 36,909 Bonds and Loans Payable 12/31/15 Carrying Value Bonds and Loans Payable 12/31/16 Carrying Value Interest expense recognized during 2016 Cash borrowed during 2016 Cash paid for interest during 2016 Cash paid for principal during 2016 Non-cash interest expense recognized during 2016

Balance Sheets & Income Stmt NOTE: You do not have any requirements on this sheet. You will use these statements to help you prepare the Statement of Cash Flows for the year ended 12/31/16. Your 12/31/16 carrying value of debt instruments and your interest expense for the year ended 12/31/16 should agree with the numbers in these financial statements. Ace Corporation Ace Corporation Balance Sheets Income Statement For the Year Ended 12/31/16 12/31/2016 12/31/2015 Cash 755,704 442,000 Sales revenue 4,280,000 Accounts receivable 375,000 45,000 Cost of goods sold 2,670,000 Merchandise inventory 665,000 485,000 Gross profit 1,610,000 Office supplies 24,000 22,000 Property, plant, and equipment, net 2,270,000 1,215,000 Operating expenses: Patent 550,000 600,000 Salaries expense 270,000 Totals 4,639,704 2,809,000 Rent expense 5,000 Supplies expense 69,000 Accounts payable 52,000 92,000 Patent amortization 50,000 Rent payable 5,000 8,000 Depreciation 210,000 Income taxes payable 100,000 27,000 Total operating expenses 604,000 Bonds and loans payable 1,982,465 250,000 Common stock ($1000 par per share) 400,000 400,000 Operating income 1,006,000 Additional paid-in capital 900,000 900,000 Interest Revenure (Expense) (193,761) Retained earnings 1,310,239 1,132,000 Gains (losses) on sales of equipment (30,000) Treasury stock (110,000) 0 Other income (loss), net (223,761) Totals 4,639,704 2,809,000 Income before income taxes 782,239 Provision for income taxes 200,000 Net Income 582,239

Statement of Cash Flows Majd Alsubhi Requirement: Complete the 2016 Statement of Cash Flows using the direct method for ADDITIONAL INFORMATION: Operating Cash Flows. Don't forget any required disclosures! Use the comparative balance sheets and 2016 income statement provided 1) Ace paid $65,000 to purchase equipment. along with additional information provided in Column E of this worksheet. 2) Ace sold equipment with an original cost of You must include the appropriate descriptive language in Column A for $440,000 and accumulated depreciation of $290,000 the items you include in each section of the cash flows statement. for $120,000 cash. 3) Ace declared and paid cash dividends. Ace Corporation You must determine the dollar amount. Statement of Cash Flows 4) Ace purchased treasury stock for $110,000. For the Year Ended 12/31/16 cash flow from operating activities 3,950,000 cash received from customers (2,890,000) cash paid to vendors (71,000) cash paid for office supplies (8,000) cash paid for rent (270,000) cash paid for salaries (127,000) cash paid for income taxes (156,852) cash paid for interest Net cash provided by operating activities 427,148 cash flows from inesting activities cash proceeds from equipment sales 120,000 capital expenditures (65,000) Net cash provided used by investing activities 55,000 cash flows from financing activities cash proceeds from bond issues 762,464 cash paid on principal (416,908) cash paid for treasury stock (110,000) cash paid for dividends (404,000) Net cash provided by finanacing activities 168,444 Net increase (decrease) in cash 313,704 Cash, January 1, 2016 442,000 Cash, December 31, 2016 755,704 Reconciliation of Net Income to Net Operating Cash Flows: Net Income 582,239 Depreciation expense 210,000 Amortization 50,000 Loss on sale of equipment 30,000 Non-cash interest expense for loan and bonds payable 36,909 Increase in accounts receivable (330,000) Increase in accounts inventory (180,000) increase in office supplies (2,000) Decrease in in account payable (40,000) Decrease in rent payable (3,000) increase in income tax payable 73,000 Net Cash provided by operating activities 427,148 Supplemental Schedule of Noncash Investing and Financing Activities: purchased equipment by issuing debt $350,000 purchased equipment by issuing debt $1,000,000

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