Reference no: EM133186334

Question 1 - Notes to the Maritime Industries Ltd. financial statements reported the following data on December 31, 2020 (the end of the fiscal year):

Note 6, Indebtedness

Bonds payable 5% due in 2025 600,000

Less: Discount (25,274) $574,726

Notes payable 8.3% payable in $50,000

Annual installments starting in year 2024 $250,000

Maritime Industries amortizes bonds by the effective-interest method.

Required -

1. Answer the following questions about Maritimes long-term liabilities

2. What is the maturity value of the 5% bonds?

3. What are Maritime's annual cash interest payments on the 5% bonds?

4. What is the carrying amount of the 5% bonds at December 31, 2020?

5. Prepare amortization table through December 31, 2023 for the 5% bonds. The market interest rate for these bonds was 6%. Maritime pays interest annually on December 31. How much is Maritime's interest expense on the 5% bonds for the year ended December 31, 2023?

6. Show how Maritime Industries would report the bonds payable and notes payable at December 31, 2023.

Question 2 - Outback Sporting Goods is embarking on a massive expansion. Assume plans call for opening 20 new stores during the next two years. Each store is scheduled to be 50% larger than the company's existing locations, offering more items of inventory, and with more elaborate displays. Management estimates that company operations will provide $1 million of the cash needed for expansion. Outback must raise the remaining $6 million from outsiders. The board of directors is considering obtaining the $6 million either through borrowing or by issuing common shares.

Required - Write memo to Outback's management discussing the advantages and disadvantages of borrowing and of issuing common shares to raise the needed cash. Which method of raising the funds would you recommend?