Balance sheet for the bonds and for the leases

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On the last day of its fiscal year ending December 31, 2013, the Sedgwick & Reams (S&R) Glass Company completed two financing arrangements. The a) funds provided by these initiatives will allow the company to expand its operations.

1. S&R issued 8% stated rate bonds with a face amount of $100 million. The bonds mature on December 31, 2033 (20 years). The market rate of interest for similar bond issues was 9% (4.5% semiannual rate). Interest is paid semiannually (4%) on June 30 and December 31, beginning on June 30, 2014.
2. The company leased two manufacturing facilities. Lease A requires 20 annual lease payments of $200,000 beginning on January 1, 2014. Lease B also is for 20 years, beginning January 1, 2014. Terms of the lease require 17 annual lease payments of $220,000 beginning on January 1, 2017. Generally accepted accounting principles require both leases to be recorded as liabilities for the present value of the scheduled payments.Assume that a 10% interest rate properly reflects the time value of money for the lease obligations.

Required:
What amounts will appear in S&R's December 31, 2013, balance sheet for the bonds and for the leases?

Reference no: EM13882952

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