30 Apr Directions:1) Reminder: THIS IS A CASE/SIMULATION
Directions:1) Reminder: THIS IS A CASE/SIMULATION ASSIGNMENT. DO NOT DISCUSS THIS ASSIGNMENTWITH ANYONE OTHER THAN DR.CHENG!!2) Ace Corporation’s debt instruments are described on each of the 5 separate "Debt" sheets.You are required to complete all 5 "Debt" sheets AND THEN summarize your analysis in the"Debt Summary" sheet in this workbook. Pay careful attention to the instructions on eachsheet.3) The 12/31/13 balance sheet and the income statement for the year-ended 12/31/13provided for you on the "Balance Sheets & Income Stmt" sheet are correct in accordancewith US GAAP and provide you with check figures for the 12/31/13 carrying value of debtand interest expense for the year ended 12/31/13. This sheet is protected so that you cannotmake changes to it. You do not have any requirements on this sheet.4) You must prepare a complete statement of cash flows for the year-ended 12/31/13 on theStmt of Cash Flows sheet in this workbook. Instructions and additional information youneed are included on this sheet in the workbook.5) Your Excel file must be submitted through the Assignments functionin Blackboard. Assignments submitted in any other way earn a score of zero.6) This assignment is due by 11:00 pm on Wed. 3/9/16. Zero points for late submissions.7) Name the project file you submit as follows: LastnameCS3. Forexample, my file name would be ChengCS3..Name:Enter Your Name Here!Debt 1Requirement 1: Enter your name in cell B1.ACCOUNTING PERIOD DETAILS:Ace’s fiscal year ends on December 31st every year.Ace prepares accrual adjusting entries semi-annually, on June 30th and Dec. 31st each year.Ace applies US GAAP for all of its debt instruments and does not use the fair value option.CONTRACT DETAILS FOR DEBT 1:Ace Corp. issued bonds with face value of $250,000 on July 1, 2009.These bonds mature on June 30, 2013 and have a stated interest rate of 8%.These bonds require semi-annual coupon payments on Dec. 31 and June 30 each year.Ace received $250,000 as original principal on 7/1/09 when these bonds were issued.Ace paid $8,000 of bond issue costs on 7/1/09 related to these bonds.Requirement 2: Fill in the boxes below for these bonds.Market (effective) interest rate for these bonds on 7/1/09:per periodSemi-annual annuity payment amount required:Requirement 3: Prepare the entries that Ace would have prepared for these bondson the dates below. If no entry is required, state so.Don’t forget to account for bond issue costs.Date6/30/2013AccountDebitCredit12/31/2013Requirement 4: Go to the Debt Summary sheet in this workbook and complete the cells for Debt 1..Debt 2Enter Your Name Here!ACCOUNTING PERIOD DETAILS:Ace’s fiscal year ends on December 31st every year.Ace prepares accrual adjusting entries semi-annually, on June 30th and Dec. 31st each year.Ace applies US GAAP for all of its debt instruments and does not use the fair value option.CONTRACT DETAILS FOR DEBT 2:Ace Corp. issued bonds with face value of $500,000 on January 1, 2013.These bonds mature on December 31, 2018 and have a stated interest rate of 10%.These bonds require semi-annual coupon payments on June 30 and Dec. 31 each year.The market interest rate for these bonds on 1/1/13 was 8.9%.Ace paid $24,000 of bond issue costs on 1/1/13 related to these bonds.Requirement 1: Fill in the boxes below for these bonds.Face value =Semi-annual annuity payment amount required =Number of periods (n) =Market interest rate per period =Cash proceeds (original principal) borrowed on 1/1/13 =Requirement 2: Prepare the entries that Ace would have prepared for these bondson the dates below. If no entry is required, state so.Don’t forget to account for bond issue costs.Date1/1/2013AccountDebitCredit6/30/201312/31/2013Requirement 3: Go to the Debt Summary sheet in this workbook and complete the cells for Debt 2..Debt 3Enter Your Name Here!ACCOUNTING PERIOD DETAILS:Ace’s fiscal year ends on December 31st every year.Ace prepares accrual adjusting entries semi-annually, on June 30th and Dec. 31st each year.Ace applies US GAAP for all of its debt instruments and does not use the fair value option.CONTRACT DETAILS FOR DEBT 3:Ace Corp. issued bonds with face value of $300,000 on July 1, 2013.These bonds mature on June 30, 2016 and have a stated interest rate of 4%.These bonds require semi-annual coupon payments on Dec. 31 and June 30 each year.Ace received $261,316 as original principal on 7/1/13 when these bonds were issued.Ace’s bond issue costs were immaterial for these bonds.Requirement 1: Fill in the boxes below for these bonds.Face value =Semi-annual annuity payment amount required =Number of periods (n) =Market interest rate per period =Cash proceeds (original principal) borrowed on 7/1/13 =Requirement 2: Prepare the entries that Ace would have prepared for these bondson the dates below. If no entry is required, state so.Date7/1/2013AccountDebitCredit12/31/2013Requirement 3: Go to the Debt Summary sheet in this workbook and complete the cells for Debt 3..Debt 4Enter Your Name Here!ACCOUNTING PERIOD DETAILS:Ace’s fiscal year ends on December 31st every year.Ace prepares accrual adjusting entries semi-annually, on June 30th and Dec. 31st each year.Ace applies US GAAP for all of its debt instruments and does not use the fair value option.CONTRACT DETAILS FOR DEBT 4:On 1/1/13, Ace decided to purchase equipment with a fair market value of $350,000.Ace financed this purchase with the vendor by issuing a loan payable.The loan payable has a face value of $492,243 because that’s the amount that Aceis required to pay the vendor on the maturity date of December 31, 2016.No other payments are required on this loan.Requirement 1: Fill in the boxes below for these bonds.Annual annuity payment amount required =ZERONumber of periods (n) =(NOTE: Even though Ace prepares semi-annualAJEs, this loan requires annual compounding.)Market interest rate per period =Original carrying value of this NON-CASH LOAN =Requirement 2: Prepare the entries that Ace would have prepared for this loanon the dates below. If no entry is required, state so.You must ignore depreciation AJEs for the equipment purchased by this loan.Date1/1/2013AccountDebitCredit6/30/201312/31/2013Requirement 3: Go to the Debt Summary sheet in this workbook and complete the cells for Debt 4..Debt 5Enter Your Name Here!ACCOUNTING PERIOD DETAILS:Ace’s fiscal year ends on December 31st every year.Ace prepares accrual adjusting entries semi-annually, on June 30th and Dec. 31st each year.Ace applies US GAAP for all of its debt instruments and does not use the fair value option.CONTRACT DETAILS FOR DEBT 5:On 1/1/13, Ace decided to purchase equipment by issuing an installment loandirectly to the equipment vendor (NON-CASH LOAN). This loan has a face value of$1,115,966, a stated interest rate of 5%, and a maturity date of 12/31/17.Based on these contract terms, the annual payment due each 12/31 is $257,760Upon further investigation, you have determined that the appropriate marketinterest rate for this loan is 9.1% on 1/1/13.REMEMBER: You cannot change the contractual terms of this loan, but you need toproperly account for the SUBSTANCE of this loan.Requirement 1: Fill in the boxes below for these bonds.Lump-sum payment due on the maturity date =(Remember that this is a regular installment loan.)Annual annuity payment amount required =(Remember that this is based on the contract terms.)Number of periods (n) =(NOTE: Even though Ace prepares semi-annualAJEs, this loan requires annual compounding.)Market interest rate per period =ZERO$257,760Original carrying value of this NON-CASH LOAN =Requirement 2: Prepare the entries that Ace would have prepared for this loanon the dates below. If no entry is required, state so.You must ignore depreciation AJEs for the equipment purchased by this loan.Date1/1/2013AccountDebitCredit6/30/201312/31/2013Requirement 3: Go to the Debt Summary sheet in this workbook and complete the cells for Debt 5..Name:Debt Summary SheetEnter Your Name Here!Each of the 5 Debt sheets that you have completed in this workbook requires you tocomplete cells in this worksheet. Note that you must complete columns C through H foreach of the 5 debt instruments. Also note that the 12/31/13 Bonds and Loans Payableamount in cell C17 needs to agree with the carrying amount reported on the 12/31/13balance sheet and the total interest expense amount in cell D17 needs to agree with theinterest expense in the income statement for the year ended 12/31/13.Debt InstrumentDebt 1Debt 2Debt 3Debt 4Debt 5TotalsCHECK FIGURES:Bonds and Loans Bonds and Loans Interest expensePayable 12/31/12 Payable 12/31/13recognizedCarrying ValueCarrying Valueduring 2013Cash borrowedduring 2013Cash paid forinterest during2013Cash paid forprincipal during2013Non-cash interestexpenserecognizedduring 2013250,0000000250,0002,003,279190,57536,909.Balance Sheets & Income StmtNOTE: You do not have any requirements on this sheet.You will use these statements to help you prepare the Statement ofCash Flows for the year ended 12/31/13.Your 12/31/13 carrying value of debt instruments and your interest expense forthe year ended 12/31/13 should agree with the numbers in these financial statements.Ace CorporationBalance SheetsCashAccounts receivableMerchandise inventoryOffice suppliesPrepaid bond issue costsProperty, plant, and equipment, netPatentTotalsAccounts payableRent payableIncome taxes payableBonds and loans payableCommon stock ($1000 par per share)Additional paid-in capitalRetained earningsTreasury stockTotalsAce CorporationIncome StatementFor the Year Ended 12/31/1312/31/2013755,704375,000665,00024,00020,0002,270,000550,0004,659,70412/31/2012442,00045,000485,00021,0001,0001,215,000600,0002,809,00052,0005,000100,0002,003,279400,000900,0001,309,425(110,000)4,659,70492,0008,00027,000250,000400,000900,0001,132,00002,809,000Sales revenueCost of goods soldGross profitOperating expenses:Salaries expenseRent expenseSupplies expensePatent amortizationDepreciationTotal operating expensesOperating incomeOther income (loss):Interest revenue (expense)Bond issue cost (expense)Gains (losses) on sales of equipmentOther income (loss), netIncome before income taxesProvision for income taxesNet Income4,280,0002,670,0001,610,000270,0005,00069,00050,000210,000604,0001,006,000(190,575)(5,000)(30,000)(225,575)780,425200,000580,425.Statement of Cash FlowsEnter Your Name Here!Requirement: Complete the 2013 Statement of Cash Flows using the direct method forOperating Cash Flows. Don’t forget any required disclosures!Use the comparative balance sheets and 2013 income statement providedalong with additional information provided in Column E of this worksheet.You must include the appropriate descriptive language in Column A forthe items you include in each section of the cash flows statement.ADDITIONAL INFORMATION:1) Ace paid $65,000 to purchase equipment.2) Ace sold equipment with an original cost of$440,000 and accumulated depreciation of $290,000for $120,000 cash.3) Ace declared and paid cash dividends.Ace CorporationStatement of Cash FlowsFor the Year Ended 12/31/13You must determine the dollar amount.4) Ace purchased treasury stock for $110,000.Cash flows from operating activitiesNet cash provided (used) by operating activitiesCash flows from investing activitiesNet cash provided (used) by investing activitiesCash flows from financing activitiesNet cash provided (used) by financing activitiesNet increase (decrease) in cashCash, January 1, 2013Cash, December 31, 2013Reconciliation of Net Income to Net Operating Cash Flows:Supplemental Schedule of Noncash Investing and Financing Activities:
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