Refer to the information in the previous question for Vodafone Group Plc. The following price quotes (from Yahoo! Finance Bond Center) relate to its bonds payable as of late 2009. For example, the price quote indicates that the 4.625% bonds have a market price of 98.0 (98.0% of par value), resulting in a yield to maturity of 4.899%.

Price	Contract Rate (coupon)	Maturity Date	Market Rate (YTM)
98.0	4.625%	15-Jul-2018	4.899%

a. Assuming that the 4.625% bonds were originally issued at par value, what does the market price reveal about interest rate changes since bond issuance? (Assume that Vodafone’s credit rating has remained the same.)
b. Does the change in market rates since the issuance of these bonds affect the amount of interest expense reported on Vodafone’s income statement? Explain.
c. How much cash would Vodafone need to pay to repurchase the 4.625% bonds at the quoted market price of 98.0? (Assume no interest is owed when the bonds are repurchased.)
d. Assuming that the 4.625% bonds remain outstanding until maturity, at what market price will the bonds sell on the due date in 2018?

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its unit costs are as follows:

$$\begin{matrix} & \text{Amount Per Unit}\\ \text{Direct materials...} & \text{\$6.00}\\ \text{Direct labor...} & \text{\$3.50}\\ \text{Variable manufacturing overhead...} & \text{\$1.50}\\ \text{Fixed manufacturing overhead} & \text{\$4.00}\\ \text{Fixed selling expense} & \text{\$3.00}\\ \text{Fixed administrative expense} & \text{\$2.00}\\ \text{Sales commissions...} & \text{\$1.00}\\ \text{Variable administrative expense...} & \text{\$0.50}\\ \end{matrix}$$

1. For financial accounting purposes, what is the total amount of product costs incurred to make 10,000 units? 2. For financial accounting purposes, what is the total amount of period costs incurred to sell 10,000 units? 3. If 8,000 units are sold, what is the variable cost per unit sold? 4. If 12,500 units are sold, what is the variable cost per unit sold? 5. If 8,000 units are sold, what is the total amount of variable costs related to the units sold? 6. If 12,500 units are sold, what is the total amount of variable costs related to the units sold? 7. If 8,000 units are produced, what is the average fixed manufacturing cost per unit produced? 8. If 12,500 units are produced, what is the average fixed manufacturing cost per unit produced? 9. If 8,000 units are produced, what is the total amount of fixed manufacturing costs incurred to support this level of production? 10. If 12,500 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production? 11. If 8,000 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis? 12. If 12,500 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis? 13. If the selling price is $22 per unit, what is the contribution margin per unit sold? 14. If 11,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production? 15. What total incremental cost will Martinez incur if it increases production from 10,000 to 10,001 units?

Vodafone Group Plc reports the following data among its bonds payable as of March 31, 2009 (pounds in millions).

a. What is the par value of the 4.625% bond issuance? What is its book (carrying) value?
b. Was the 4.625% bond sold at a discount or a premium? Explain.

Use Research In Motion’s annual report in Appendix A. Is there any indication that RIM has issued bonds?

Santana Rey has consulted with her local banker and is considering financing an expansion of her business by obtaining a long-term bank loan. Selected account balances at March 31, 2012, for Business Solutions are shown below:

Required
1. The bank has offered a long-term secured note to Business Solutions. The bank’s loan procedures require that a client’s debt-to-equity ratio not exceed 0.8. As of March 31, 2012, what is the maximum amount that Business Solutions could borrow from this bank (rounded to nearest dollar)?
2. If Business Solutions borrows the maximum amount allowed from the bank, what percentage of assets would be financed (a) by debt and (b) by equity?
3. What are some factors Santana Rey should consider before borrowing the funds?

Juicyfruit, Inc., signs a five-year lease for office equipment with Office Solutions. The present value of the lease payments is $20,859. Record the journal entry that Juicyfruit records at the inception of this capital lease.

Simon issues four-year bonds with a $50,000 par value on June 1, 2011, at a price of$47,974. The annual contract rate is 7 percent, and interest is paid semiannually on November 30 and May 31.

1. Prepare an amortization table like the one in Exhibit 14.7 for these bonds. Use the straight-line method of interest amortization.
2. Prepare journal entries to record the first two interest payments and to accrue interest as of December 31, 2011.

What obligation does an entrepreneur (owner) can get to investors that purchase bonds to finance the business?

On May 1, 2011, Fellenger Enterprises issues bonds dated January 1, 2011, that have a $1,700,000 par value, mature in 20 years, and pay 9% interest semiannually on June 30 and December 31. The bonds are sold at par plus 4 months’ accrued interest.

1. How much accrued interest do the bond purchasers pay Fellenger on May 1, 2011?
2. Prepare Fellenger’s journal entries to record (a) the issuance of bonds on May 1, 2011; (b) the first interest payment on June 30, 2011; and (c ) the second interest payment on December 31, 2011.

Lauren Wright, an employee of ETrain.com, leases a car at O’Hare airport for a three-day business vacation. The rental cost is $350. Prepare the entry by ETrain.com to record Lauren’s short-term car lease cost.

Discuss the debt-to-equity ratio and explain how creditors and owners would use this ratio to evaluate a company’s risk.

Montana Company signs a five-year capital lease with Elway Company for office equipment. The annual lease payment is $20,000, and the interest rate is 8%.

Required
1. Calculate the present value of Montana’s five-year lease payments.
2. Prepare the journal entry to record Montana’s capital lease at its inception.
3. Complete a lease payment schedule for the five years of the lease with the following headings. Assume that the beginning balance of the lease liability (present value of lease payments) is$79,854. (Hint: To find the amount allocated to interest in year 1, multiply the interest rate by the beginning-of-year lease liability. The amount of the annual lease payment not allocated to interest is allocated to principal. Reduce the lease liability by the amount allocated to principal to update the lease liability at each year-end.)

4. Use straight-line depreciation and prepare the journal entry to depreciate the leased asset at the end of year 1. Assume zero salvage value and a five-year life for the office equipment.

What is the issue price of a $2,000 bond sold at 98.75? What is the issue price of a$6,000 bond sold at 101.5?

Preston Company signs a five-year capital lease with Starbuck Company for office equipment. The annual lease payment is $10,000, and the interest rate is 10%.

Required
1. Calculate the present value of Preston’s lease payments.
2. Prepare the journal entry to record Preston’s capital lease at its inception.
3. Complete a lease payment schedule for the five years of the lease with the following headings. Assume that the beginning balance of the lease liability (present value of lease payments) is$37,908. (Hint: To find the amount allocated to interest in year 1, multiply the interest rate by the beginning-ofyear lease liability. The amount of the annual lease payment not allocated to interest is allocated to principal. Reduce the lease liability by the amount allocated to principal to update the lease liability at each year-end.)

4. Use straight-line depreciation and prepare the journal entry to depreciate the leased asset at the end of year 1. Assume zero salvage value and a five-year life for the office equipment.