A few questions before starting book 4...

Hi everyone, I’m finally finished with volume 3. Before I crack into the 4th book, I had a few questions that were lingering in the back of my mind, possibly relating to errata. On Reading 40, Practice problem 6(B), where we adjust the times-interest-earned ratio with the commitments provided in the footnotes for The Bowie Company, the back of the book (p A-46) calculates implicit interest based on the PV of the lease and the bond guarantee, but not the take-or-pay contract. According to the the answer key, “[no] adjustment has been made for the take-or-pay contract, as it does not affect 1993 interest expense. Adjustments in future years will be based on the implicit interest rate of 21%.” Where do we get 1993 from? The earliest year mentioned in the problem is 2001. I calculated the IRR of 21%. Shouldn’t the answer say that we’re not including implied interest for the take-or-pay contracts as they’re starting in 2002, and we’re only looking at 2001? Also, in the same reading, on problem 8(G), where we calculate the adjustments for a sales-type lease to the financial statements, we are shown on page A-50 that current portion in net investment in the lease for 12/31/01 is $3,180, while the long-term is $159,518. Is it me or does this just seem wrong? The original problem stated a lease of $20,000 for 20 years, and discounted to the PV gives us 170,271. Then if we add in the PV of the $5500 in salvage value, we arrive at a total of $171,089 in net investment. Fine. So here are the numbers I’ve worked out: Date…Rent…Interest…Current…Balance ------------------------------------------------------------------- 01/01/01…20,000…17,109…2,891…168,198 12/31/01…20,000…16,820…3,180…165,018 12/31/02…20,000…16,502…3,498…161,520 How, then, does the book show a current net investment in 12/31/01 of $3180 and a long-term net investment of $159,518? And for 12/31/02, current of $3498, but long-term of $156,020? Am I doing the math wrong or something? I even looked at the example on page 548 and I’m still confused by the answer in the back of the book. Any help would be appreciated. Thank you.

bump

gdiddy most of us here are on the throes of giving an examination in about 1 week, and are not in a position to respond to “bumps” when a. Some of that material is new b. Page #s on the 2007 and 2008 books have changed etc. Wait till after Dec 1st, you might get some better responses then.

oau diddy you almost beat me and I am taking the exam in dec 2007

Sorry about that. I thought we had a few people here studying for the June 2008 exam.

apparently you are the front-runner in that group of “June 2008”…which is no surprise!!!