Required information [The following information applies to the questions displayed below.] Thrillville has $39.3 million in bonds payable. One of the contractual agreements in the bond is that the debt to equity ratio cannot exceed 2.0. Thrillville's total assets are $79.3 million, and its liabilities other than the bonds payable are $9.3 million. The company is considering some additional financing through leasing. The company enters a lease agreement requiring lease payments with a present value of $14.3 million. 4-a. Will entering into the lease cause the debt to equity ratio to be in violation of the contractual agreement in the bond? 4-b. Determine your answer by calculating the debt to equity ratio after recording the lease.

Required information [The following information applies to the questions displayed below.] Thrillville has $39.3 million in bonds payable. One of the contractual agreements in the bond is that the debt to equity ratio cannot exceed 2.0. Thrillville's total assets are $79.3 million, and its liabilities other than the bonds payable are $9.3 million. The company is considering some additional financing through leasing. The company enters a lease agreement requiring lease payments with a present value of $14.3 million. 4-a. Will entering into the lease cause the debt to equity ratio to be in violation of the contractual agreement in the bond? 4-b. Determine your answer by calculating the debt to equity ratio after recording the lease.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

(Lease Capitalization, Bargain-Purchase Option) Baden Corporation entered into a lease agreement for 10 photocopy machines for its corporate headquarters. The lease agreement qualifies as an operating lease in all terms except there is a bargain-purchase option. After the 5-year lease term, the corporation can purchase each copier for $1,000, when the anticipated fair value is $2,500.Jerry Suffolk, the financial vice president, thinks the financial statements must recognize the lease agreement as a capital lease because of the bargain-purchase option. The controller, Diane Buchanan, disagrees: “Although I don’t know much about the copiers themselves, there is a way to avoid recording the lease liability.” She argues that the corporation might claim that copier technology advances rapidly and that by the end of the lease term the machines will most likely not be worth the $1,000bargain price.InstructionsAnswer the following questions.(a) What ethical issue is at stake?(b) Should the…
[The following information applies to the questions displayed below.] On January 1, Rogers (lessee) signs a three-year lease for machinery that is accounted for as a finance lease. The lease requires three $18,000 lease payments (the first at the beginning of the lease and the remaining two at December 31 of Year 1 and Year 2). The present value of the three annual lease payments is $51,000, using a 6.003% interest rate. The lease payment schedule follows. Date January 1, Year 1 December 31, Year 1 December 31, Year 2 (A) Beginning Balance of Lease Liability $ 51,000 33,000 16,981 (B) Debit Interest on Lease Liability 6.003% X (A) $0 1,981 1,019 $ 3,000 + (C) Debit Lease Liability (D) (B) $ 18,000 - 16,019 16,981 $ 51,000 (D) Credit Cash Lease Payment $ 18,000 18,000 18,000 $ 54,000 (E) Ending Balance of Lease Liability (A) (C) $ 33,000 16,981 0
DO not give answer in image
At the beginning of the year, Cazenovia, Inc. Entered into a five-year lease for equipment that was valued at $95,000. The company will be required to make annual lease payments of $22,000 for five years at year-end. The implicit interest rate is 5% and the company classified the lease as a finance lease. Required What is the balance sheet value of the lease asset and the lease liability? Why was the lease categorized as a finance lease? How much is interest expense in the first year? What is the reduction in the lease liability in the first year? What is the total expense if straight-line amortization is used for the leased asset?
Hello! I need help with the following accounting problem where we have to compute the total cost of borrowing for the bonds based on the info attatched. Thank you!
Zhang Company leased equipment from Mann Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $52,538 over a six-year lease term (also the asset's useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 5%. The asset being leased cost Mann $230,000 to produce. Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Required: 1. Determine the price at which the lessor is "selling" the asset (present-value of the lease payments). 2. What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the price at which the lessor is "selling" the asset (present value of the lease payments). Note: Round your intermediate and final answers to the nearest whole…
King Company leased equipment from Mann Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $52,538 over a six-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5%. The asset being leased cost Mann $230,000 to produce. Required:1. Determine the price at which the lessor is “selling” the asset (present value of the lease payments).2. What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)?