How much actual interest must Griz pay to bondholders (creditors) in 2017?… 1 answer below »

On January 1, 2017, Griz Industries sold ten-year term bonds with a face value of $1,000,000. The bonds carried a coupon rate of 6%, with interest payable annually. The market rate of interest on the date the bonds were issued was 5%. The proceeds that were received by Griz upon issuance of the bonds were $1,025,000 (Note: fictional amount for ease of your calculations – not based on actual PV calculations). Based on these facts, answer the following questions (show your calculations to receive credit):
How much actual interest must Griz pay to bondholders (creditors) in 2017? How much will Griz recognize as interest expense in 2017 (use the effective interest method)? What is the amount of bond premium amortized in 2017 (use the effective interest method)? What is the book value (carrying value) of the bonds as of January 1, 2018, following payment of the interest for 2017?
Problem 2. ACCOUNTING FOR FIXED ASSET IMPAIRMENTS
The following information for Gator Company is provided:
-A piece of custom-made equipment was purchased on January 1, 2014 for $1,500,000.
-The equipment is being depreciated straight-line over a 10 year useful life with no salvage value.
-On December 31, 2017, the asset is evaluated for possible impairment. Assume all appropriate depreciation has already been recorded to that date.
-On December 31, 2017, it is estimated that the (undiscounted) future net cash flows to be generated by the asset will be $875,000.
-The present value of these future cash flows is $800,000.
-On December 31, 2017, the fair market value of the asset (if sold) is $890,000.
Answer the following questions:
Is the equipment impaired, yes or no? Support your answer with appropriate calculations. Assume the asset is impaired (regardless of you answer to part A). What would be the amount of the write-down (loss) that will be recognized on Gator Company’s books? Support your answer with appropriate calculations.
Problem 3. SHORT ANSWER QUESTIONS
In question order, clearly and concisely respond to the following questions.
Very briefly, what is the difference between an identifiable intangible asset and an unidentifiable intangible asset? Related to depreciation, under what three circumstances is a change in accounting estimate appropriate, assuming there has been no change to the asset’s cost due to improvements (be very specific)? Generally, how are changes in accounting estimate accounted for (hint: one word answer)? Explain why many companies would prefer to account for a lease as an operating lease as opposed to a capital lease (answer from the lessee’s perspective). Be sure to focus on the impact of the type of lease on BOTH the balance sheet and income statement. Briefly explain why asset impairment testing is a two-step process for tangible assets and identifiable intangible assets with limited lives, but is only a one-step process (with a different test) for identifiable intangible assets with an indefinite life.
Problem 4. PFIZER ANNUAL REPORT (See Attachment)
The Pfizer, Inc. 2017 Financial Report has been provided for you in PDF form. This report is 145 pages long. You do not need to read the entire report and probably shouldn’t waste your paper and ink to print it. The audited financial statements and auditor’s reports begin on page 73 of the document. Using this part of the Report, answer the following questions:
How much did Pfizer report for research and development expenses in 2017? What was the carrying value of Pfizer’s long-term debt in 2017? How does Pfizer determine the useful life of an intangible asset that it amortizes? From the information Pfizer provides, what is the highest interest rate that it pays on its newly issued long-term debt denominated in a foreign currency as of 12/31/17? How much of Pfizer’s long-term debt will mature in 2021? What is the range of estimated useful lives that Pfizer uses to depreciate its machinery and equipment in 2017? Approximately what percentage of Pfizer’s property, plant, and equipment is already depreciated as of 12/31/17 (you need to calculate this)? Identify the type of finite-lived intangible asset that had the highest net carrying value as of 12/31/17. Identify the type of indefinite-lived intangible asset that had the highest net carrying value as of 12/31/17.
HINT: Much (but not all) of this information is included in the appropriate footnotes. Be sure to pay attention to the title of each footnote so you don’t waste time reading footnotes that are not relevant to the questions.

 

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