Purchase Solution

Intermediate Accounting II: Understanding Debt, Bonds, SPE

Not what you're looking for?

Ask Custom Question

1 - You are planning to invest $10,000 in ABC's bonds. Right now the stated rate of the bonds is seven percent, and the market rate is eight percent. The Federal Reserve System (FRS) is considering lowering the interest rate by two percent to help stimulate the economy sometime next year, but the final decision has not been made (or at least publicly announced).

Should you invest in the bonds now or wait until the FRS makes its announcement? What is your reasoning behind your decision? What affect will this have on ABC's financial statements? How long should you hold the bonds if you choose to invest?

2 - Morrison Company has created SPE. None of the executives of Morrison Company is associated with the SPE as it has its own new president and chief executive officer (CEO). The SPE will hold the bonds issued by Morrison Company in return for shares of Morrison Company stock of equal amount, including the present value of the interest payments, and will pay off the debt when it comes due.

In your opinion, are the actions of Morrison Company and the SPE ethical? Why or why not? Should Morrison Company report the debt on the balance sheet? Why or why not?

Purchase this Solution

Solution Summary

Three paragraphs discuss the impact of interest rates on the issuer and the investor and the SPE issue.

Solution Preview

1 - You are planning to invest $10,000 in ABC's bonds. Right now the stated rate of the bonds is seven percent, and the market rate is eight percent. The Federal Reserve System (FRS) is considering lowering the interest rate by two percent to help stimulate the economy sometime next year, but the final decision has not been made (or at least publically announced).
Should you invest in the bonds now or wait until the FRS makes its announcement? What is your reasoning behind your decision? What affect will this have on ABC's financial statements? How long should you hold the bonds if you choose ...

Solution provided by:
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
Recent Feedback
  • "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
  • "Thank, this is more clear to me now."
  • "Awesome job! "
  • "ty"
  • "Great Analysis, thank you so much"
Purchase this Solution


Free BrainMass Quizzes
Learning Lean

This quiz will help you understand the basic concepts of Lean.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations