On the Last Day of Its Fiscal Year Ending December

question 84

Essay

On the last day of its fiscal year ending December 31, 2013, the Boatright Ship Builders completed two financing arrangements. The funds provided by these initiatives will allow the company to expand its operations.
1. Boatright issued 6% stated rate bonds with a face amount of $200 million. The bonds mature on December 31, 2033 (20 years). The market rate of interest for similar bond issues was 8% (4% semiannual rate). Interest is paid semiannually (3%) on June 30 and December 31, beginning on June 30, 2014.
2. The company leased two manufacturing facilities. Lease A requires 10 annual lease payments of $50,000 beginning on January 1, 2014. Lease B also is for 10 years, beginning January 1, 2014. Terms of the lease require seven annual lease payments of $60,000 beginning on January 1, 2017. Accounting standards require both leases to be recorded as liabilities for the present value of the scheduled payments. Assume that an 8% interest rate properly reflects the time value of money for the lease obligations.
Required:
What amounts will appear in Boatright's December 31, 2013, balance sheet for the bonds and for the leases?

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