National Co. has P5,000,000 in current assets, P3,000,000 in current liabilities, and its initial inventory level is P1,000,000. The company plans to increase its inventory, and it will raise additional short-term debt (that will show up as notes payable on the balance sheet) to purchase the inventory. Assume that the value of the remaining current assets will not change. The company’s bond covenants require it to maintain a current ratio that is greater than or equal to 1.5. What is the maximum amount that the company can increase its inventory before it is restricted by these covenants?
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National Co. has P5,000,000 in current assets, P3,000,000 in current liabilities, and its initial inventory level is P1,000,000. The company plans to increase its inventory, and it will raise additional short-term debt (that will show up as notes payable on the balance sheet) to purchase the inventory. Assume that the value of the remaining current assets will not change. The company’s bond covenants require it to maintain a
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- For the past three years, Sheridan Holdings Ltd. has held bonds as investments, which it accounted for using the amortized cost model. The bonds were purchased at a discount and are currently classified as Bond Investment at Amortized Cost. There have been no disposals of bonds since the purchase in early 2021. Due in part to Bonafacio's liquidity needs, and the recent market rate of interest increases, Sheridan has changed its plans concerning holding the bonds as fixed income. It now feels unwilling to wait for the bonds' maturity date to collect the proceeds from the maturity. Consequently, it was decided in December 2023 that the bonds should instead be accounted for as Fair Value-Net Income (FV-NI) Investments. Sheridan follows IFRS. The carrying amount and fair value of the investment portfolio of bonds appears below, along with the interest income recorded in the accounts: Year Ended December 31, 2023 2022 2021 Carrying amount at amortized cost $229,247 $225,725 $222,401 Fair…Company A estimated that it will receive less interest payments and principal payments from its Available-for-Sale investments in Company B’s bonds. Company A does not intend to sell the bonds before they will recover. See the information below: Amortized cost of Company B bonds: $800,000. Discounted value of estimated payments at the interest rate on the date of bond inception: $650,000. Fair value of Company B bonds: $400,000. How will Company A record this assessment? a. Company A will debit Credit Loss Expense by $150,000. b. Company A will debit loss on impairment by $400,000. c. Company A will credit Investment account by $800,000. d. Company A will not record this assessment given that the investment is AFS. e. Company A will debit Credit Loss Expense by $400,000.A company purchases debt securities for $100,000 at the beginning of 2022. It classifies as trading securities and $60,000 as AFS securities. It sells the securities in 2023. Required For each of the following scenarios, indicate the net effect on income and other comprehensive income in each year 2022 and 2023. In each case, any unrealized decline in value below cost is expected to be recovered and is attributed to market factors. a. Fair value, end of 2022 Selling price, 2023 Note: Use a negative sign with an answer to indicate the net effect amount decreases Income or OCI. OCI End of 2022 $ 2023 b. Trading securities AFS securities $38,000 $65,000 43,000 64,000 Income Fair value, end of 2022 Selling price, 2023 End of 2022 $ 2023 (2,000)✓ $ 9,000 ✓ Trading securities AFS securities $45,000 $56,000 42,000 68,000 Note: Use a negative sign with an answer to indicate the net effect amount decreases Income or OCI. OCI (4,000) ✔ 0 x 5,000 ✓ 0 x Income 5,000 $ 5,000 ✓
- On January 1, 2023, Waterway Corporation purchased a $1,230,000 bond issued by ALN Ltd. The bond was due to mature on December 31, 2025, and paid interest at 6% every June 30 and December 31. The market interest rate was 8%. Waterway had both the intention and ability to hold the bond until its maturity date. On January 1, 2025, Waterway became aware that ALN was experiencing severe financial difficulties. After discussing the situation with ALN and some of the other creditors, Waterway believed that ALN would now be able to repay only $1, 107,000 of the original $1,230,000 bond. (The tables in this problem are to be used as a reference for this problem.) Calculate the purchase price of the bond using A-2 and A-4 Tables, a financial calculator or Excel functions. (Round factor values to 5 decimal places, eg. 1.25124 and final answer to 2 decimal places, e. g. 5,275.36.)The Bank of Willaine, Inc. issued an obligation to depositors who agree to pay ten (10) percent failsafe for one year. With the funds it acquires, The Bank of Willaine, Inc. can invest in different financial assets like in the stock market. What is the risk if the bank uses the funds it acquired from the depositors to invest in common stock? What liability type does the bank has by issuing that obligation?On February 18, 2021, Union Corporation purchased 600 IBM bonds as a long-term investment at their face value for a total of $600,000. Union will hold the bonds indefinitely, and may sell them if their price increases sufficiently. On December 31, 2021, and December 31, 2022, the market value of the bonds was $580,000 and $610,000, respectively.Required:1. What is the appropriate reporting category for this investment? Why?2. Prepare the adjusting entry for December 31, 2021.3. Prepare the adjusting entry for December 31, 2022.
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- 1) On December 31, 2016, Largo Company had a P750,000 note payable outstanding due July 31,2017. The entity planned to refinance the note by issuing long-term bonds. Because the entity temporarily had excess cash, it prepaid P250,000 of the note on January 15, 2017. In February 2017, the entity completed a P1,500,000 bond offering. The entity will use the bond offering proceeds to repay the note payable at maturity. On March 31, 2017, the 2016 financial statements were authorized for issue.What amount of the note payable should be included in current liabilities on December 31, 2016? a. 750,000 b. 500,000 c. 250,000 d. 0 2) Dean company has a P2,000,000 note payable due June 30, 2017. On December 31, 2015, the entity signed an agreement to borrow up to P2,000,000 to refinance the note payable on a long-term basis. The financing agreement called for borrowing not to exceed 80% of the collateral the entity was providing. On December 31, 2016, the value of the collateral was…Thomas Company is planning to issue $510,000 of 9%, 15-year bonds payable to borrow for a major expansion. The owner, Frederick Thomas, asks your advice on some related matters. Read the requirements. ..... Requirement 1. Answer the following questions. At what type of bond price will Thomas Company have total interest expense equal to the cash a. interest payments? Face value Under which type of bond price will Thomas Company's total interest expense be greater than the b. cash interest payments? Discount price If the market interest rate is 12%, what type of bond price can Thomas Company expect for the c. bonds? Discount price Requirement 2. Compute the price of the bonds if the bonds are issued at 89. The price of the $510,000 bond issued at 89 is $ 453,900 Requirement 3. How much will Thomas Company pay in interest each year? How much will Thomas Company's interest expense be for the first year? (For this scenario we are assuming that the $510,000 bonds are issued at 89. Further…On January 1, 2024, LLB Industries borrowed $210,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly. ⚫ LLB entered into a two-year interest rate swap agreement on January 1, 2024, and designated the swap as a fair value hedge. Its intent was to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. • The agreement called for the company to receive payment based on a 10% fixed interest rate on a notional amount of $210,000 and to pay interest based on a floating interest rate. The contract called for cash settlement of the net interest amount quarterly and rates reset at the beginning of each period. • Floating (SOFR) settlement rates were 10% at January 1, 8% at March 31, and 6% at June 30 and September 30, 2024. The fair values of the swap are quotes obtained from a derivatives dealer. Those quotes and the fair values of the note are as indicated below. Assume LLB uses the shortcut method. Fair value…