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Microsoft Word - Problem Set 4 Copyright © 2019 You may only share these materials with current term students EMBA FINANCIAL ACCOUNTING Problem Set 4 QUESTION 1. Z Financial Corporation...

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Microsoft Word - Problem Set 4
Copyright © 2019
You may only share these materials with cu
ent term students

EMBA FINANCIAL ACCOUNTING 
  Problem Set 4 
 
QUESTION 1. Z Financial Corporation 
 
On January 2, 2014, the Z Financial Corporation sold a large issue of Series A $1,000 denomination 
onds to raise $100 million.  The bonds had a stated coupon rate of 3.9%, had a term to 
maturity of five years, and made quarterly coupon payments (at the end of March, June, 
September and December each year). Market conditions at the time were such that the bonds 
were sold at their face value. 
During the ensuing two years, market interest rates fluctuated widely, and in December of 
2015, the management of Z financial decided that they would retire the Series A bonds on 
the second anniversary of the issue (i.e., retire three years early) by conducting open 
market operations.  In order to partially finance the purchase of the bonds, Z Financial’s 
management issued Series B bonds of a face value of $50 million, with a three year term, 
paying a coupon of 4% paid semi‐annually (30 June and 31 Dec) for a 3 year term.  At that 
time, three years bonds issued by companies with Z Financial’s risk profile were trading at a 
yield of 4.1%. 
[For convenience, in solving this problem, assume that the period from 2nd Jan to 31st March or 30th 
June is one full quarter or a half year.] 
Required: 
 
Show the journal entries necessary to record the following transactions: 
 
a. Issue Series A bonds on 2 January 2014. 
 
. Purchase and retirement of Series A bonds on January 2, 2016. 
 
c. Issue of Series B bonds on January 2, 2016 for a three year term. 
 
d. The first coupon payment (March 31) on the Series B bonds issued. 
   
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QUESTION 2.  For Them 
 
For You Inc., is a family friendly boutique that sells haute couture apparel for the sophisticated 
shopper.  During the year 2015, the company decided to move into larger premises.  In order to 
conserve its cash position, it decided to lease the premises instead of buying.  It entered into a 6 
year lease for the property.  It made an initial payment of $20,000 on June 1, the inception of 
the lease.  Of this 10,971.83 was charged for various application and legal fees, and the balance 
credited as payment on the lease.  Subsequently, the company was required to pay $7,000 per 
month at the end of each month, starting from June 30, 2015.  It reported the following 
numbers for fiscal year 2019: 
For the year ended December 31,  2019  2018 
Right to use lease asset, gross  $450,000  $450,000 
Less: Accumulated depreciation  343,750  268,750 
Right to use lease asset, net  $106,250  $181,250 
Finance Lease obligation  $115,077  $192,011 
 
The lessor charges an interest rate of 4.5% per year on such leases. 
Required: 
a. Calculate the depreciation expense on the premises for the fiscal year ending December 
31, 2019. 
. Prepare the journal entry for lease payments made in FY 2019 showing the bifurcation 
into interest payment and lease repayments.  Even though the company made 12 
payments during the year, please present one journal entry that combines all effect of 
all twelve payments (just sum them up) made during the year.  
   
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QUESTION 3. Verizon 
 
You are given portions of Verizon’s 2016 Annual Report.  (Note fiscal year 2016 ends on 
December 31, 2016 ‐ all references to years in the questions refer to fiscal year).  (File is 
available on Canvas). 
 
PART A – The following questions relate to material 
already covered in class.  You are required to submit 
answers to these questions. 
 
a. Describe in no more than three lines Verizon’s business. (Hint: See Footnote 1 ‐ Page 11) 
. What was the percentage change  in Total Revenues for Verizon  from 2015  to 2016? 
What was the co
esponding change in Operating Income? 
c. Which was higher in 2016 ‐ Verizon’s Net Income or Cash flow From Operations?  By how 
much? 
d. By how much (in dollars) did Verizon’s Long‐term debt increase during 2016?  How 
much of the change could be attributed to a change in Cu
ent maturities (reported in 
Cu
ent Liabilities)? 
e. Briefly explain the recognition policies adopted by Verizon for sales of its wireline and 
wireless businesses (other than equipment sales). (Footnote 1 – Page 11) 
f. (Optional) What is the significance of the following words ‐ “Person, Woman, Man, 
Camera, TV”? 
g. When does Verizon claim it expenses maintenance and repairs? (Footnote 1, Page 12) 
h. What were the cash expenditures for Property plant and equipment and Capitalized 
Software in 2016?  Compare this amount to the 2015 expenditure. (Hint: Cash Flow 
Statement) Which depreciation method is used by Verizon for financial reporting?  
How does the company estimate useful lives, and what are the changes reported by 
the company for 2016 arising from this analysis? (Footnote 1, page 13)  What was the 
depreciation expense recorded by the company in 2016? (Footnote on page 32) 
i. How much did the company spend on acquisitions in 2016? (Cash flow statement)  How 
much did this contribute to the change in goodwill reported by the company? (Footnote on 
goodwill – pages 23/24) 
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j. Besides goodwill, does the company report any other indefinite life intangible assets?  
How does the company test for impairment?  Did the company report any impairment 
in 2016?  (See footnote 1)  What was its amortization expense in 2016?  (Footnote on 
additional financial information – page 32) 
k. What percentage of existing gross Accounts Receivable (reported at the end 
of 2016) does Verizon not expect to collect?  Was this materially different 
from its 2015 estimate?  What was the bad debt expense, write‐offs of 
uncollectibles, and recovery of prior write‐offs in 2016? (See balance sheet 
and Schedule II) 
l. Which inventory flow method does the company use to report its inventories? 
(Footnote 1) 
m. What is the amount recognized by Verizon at the end of 2016 as a liability for 
capital lease obligations?  What is the implied interest on its capital lease 
obligations?  What lease obligation would the company have reported for its 
operating leases, if the interest rate for operating leases is the same as capital 
leases (Assume that payment after 2021 is all made in 2022)? (Footnote on 
leasing a
angement – page 25) 
n. Assume the interest expense on the Income statement relates only to the Long‐
term debt and to half of the Short‐term debt and cu
ent maturities (i.e., those 
were paid, on average, in the middle of the year) reported at the beginning of the 
year [i.e., 31 December 2015 balance]. Add interest capitalized (in 2016) to the 
eported interest expense to estimate actual interest costs for the year.  What is 
the average effective interest rate for Verizon’s debt? 
 
PART B – The following questions relate to material not 
yet covered in class.  You do not have to submit this with 
your problem set.  It will be a good review for the final 
when we cover these materials in class. 
 
o. In 2016, was Comprehensive Income higher or lower than Net Income? By how much?  
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Which item explains the highest portion of the difference?   
p. What was the effective tax rate for the year?  Which single item has the largest impact 
on the difference between statutory and effective rate?  Provide the journal entry 
that summarizes Verizon’s income tax expense for 2016? 
q. What kind of dilutive instruments affect the Diluted EPS reported by Verizon? 

10- K
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10- K
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from XXXXXXXXXXto
Commission file number: XXXXXXXXXX
Verizon Communications Inc.
(Exact name of registrant as specified in its charter)
Delaware XXXXXXXXXX
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer Identification No.)
1095 Avenue of the Americas
New York, New York 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: XXXXXXXXXX
Securities registered pursuant to Section 12(b) of the Act:
XXXXXXXXXXTitle of each class
Name of each exchange
XXXXXXXXXXon which registered
Common Stock, $.10 par value New York Stock Exchange
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well- known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S- T (§ XXXXXXXXXXof this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S- K (§ XXXXXXXXXXof this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10- K or any amendment to this Form 10- K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer or a smalle
eporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b- 2 of
the Exchange Act. (Check one):
Large accelerated filer Accelerated filer Non- accelerated filer Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b- 2 of the Act). Yes No
At June 30, 2016, the aggregate market value of the registrant's voting stock held by non- affiliates was approximately
$227,584,340,225.
At January 31, 2017, 4,076,731,752 shares of the registrant's common stock were outstanding, after deducting 165,642,488 shares
held in treasury.
Documents Incorporated By Reference:
Portions of the registrant's Annual Report to Shareowners for the year ended December 31, 2016 (Parts I and II).
Table of Contents
Schedule II - Valuation and Qualifying Accounts
Verizon Communications Inc. and Subsidiaries
For the Years Ended December 31, 2016, 2015 and 2014
(dollars in millions)
Additions
Description
Balance at
Beginning of
Period
Charged to
Expenses
Charged to
Other Accounts
Note (a)(b)
Deductions
Note (c)(d)
Balance at
End of Period
Allowance for Uncollectible Accounts
Receivable:
Year 2016 (e) $ 1,037 $ 1,420 $ 204 $ 1,515 $ 1,146
Year 2015 (e) 739 1, XXXXXXXXXX,512 1,037
Year XXXXXXXXXX, XXXXXXXXXX,142 739
Valuation Allowance for Defe
ed Tax Assets:
Year 2016 $ 3,414 $ 146 $ 47 $ 1,134 $ 2,473
Year 2015 1, XXXXXXXXXX, XXXXXXXXXX,414
Year 2014 1, XXXXXXXXXX,841
(a) Allowance for Uncollectible Accounts Receivable primarily includes amounts previously written off which were credited directly to this
account when recovered.
(b) Valuation Allowance for Defe
ed Tax Assets includes an increase to the valuation allowance as a result of the acquisition of AOL in 2015 and
amounts charged to equity and reclassifications from other balance sheet accounts.
(c) Amounts written off as uncollectible or transfe
ed to other accounts or utilized.
(d) Reductions to valuation allowances related to defe
ed tax assets.
(e) Allowance for Uncollectible Accounts Receivable includes approximately $301 million and $155 million at December 31, 2016 and 2015,
espectively, related to long- term device payment plan receivables.
29
Consolidated Statements of Income Verizon Communications Inc. and Subsidiaries
(dollars in millions, except per share amounts)
Years Ended
December 31, XXXXXXXXXX
Operating
Revenues
Service revenues
and other $ 108,468 $ 114,696 $ 116,122
Wireless equipment
evenues 17,512 16,924 10,957
Total Operating
Revenues 125,980 131,620 127,079
Operating
Expenses
Cost of services
(exclusive of items
shown below) 29,186 29,438 28,306
Wireless cost of
equipment 22,238 23,119 21,625
Selling, general and
administrative
expense, net 31,569 29,986 41,016
Depreciation and
amortization
expense 15,928 16,017 16,533
Total Operating
Expenses 98,921 98,560 107,480
Operating Income 27,059 33,060 19,599
Equity in (losses)
earnings of
unconsolidated
usinesses XXXXXXXXXX,780
Other income and
(expense), net (1, XXXXXXXXXX,194)
Interest expense (4,376) (4,920) (4,915)
Income Before
Provision Fo
Income Taxes 20,986 28,240 15,270
Provision fo
income taxes (7,378) (9,865) (3,314)
Net Income $ XXXXXXXXXX,608 $ XXXXXXXXXX,375 $ XXXXXXXXXX,956
Net income
attributable to
noncontrolling
interests $ XXXXXXXXXX $ XXXXXXXXXX $ XXXXXXXXXX,331
Net income
attributable to
Verizon 13,127 17,879 9,625
Net Income $ XXXXXXXXXX,608 $ XXXXXXXXXX,375 $ XXXXXXXXXX,956
Basic Earnings Pe
Common Share
Net income
attributable to
Verizon $ XXXXXXXXXX $ XXXXXXXXXX $ XXXXXXXXXX
4,080 4,085 3,974
Weighted- average
shares outstanding
(in millions)
Diluted Earnings
Per Common
Share
Net income
attributable to
Verizon $ XXXXXXXXXX $ XXXXXXXXXX $ XXXXXXXXXX
Weighted- average
shares outstanding
(in millions) 4,086 4,093 3,981
See Notes to Consolidated Financial Statements
Consolidated Statements of Comprehensive Income Verizon Communications Inc. and Subsidiaries
(dollars in millions)
Years Ended December 31, XXXXXXXXXX
Net Income $ 13,608 $ 18,375 $ 11,956
Other Comprehensive Income,
net of taxes
Foreign cu
ency translation
adjustments XXXXXXXXXX,199)
Unrealized gains (losses) on cash
flow hedges XXXXXXXXXX)
Unrealized losses on marketable
securities XXXXXXXXXX)
Defined benefit pension and
postretirement plans 2, XXXXXXXXXX
Other comprehensive income (loss)
attributable to Verizon 2, XXXXXXXXXX,247)
Other comprehensive loss
attributable to noncontrolling
interests (23)
Total Comprehensive Income $ 15,731 $ 17,814 $ 10,686
Comprehensive income attributable
to noncontrolling interests XXXXXXXXXX,308
Comprehensive income attributable
to Verizon 15,250 17,318 8,378
Total Comprehensive Income $ 15,731 $ 17,814 $ 10,686
See Notes to Consolidated Financial Statements
Consolidated Balance Sheets Verizon Communications Inc. and Subsidiaries
(dollars in millions, except per share amounts)
At December 31, XXXXXXXXXX
Assets
Cu
ent assets
Cash and cash equivalents $ XXXXXXXXXX,880 $ 4,470
Short- term investments 350
Accounts receivable, net of allowances of
$845 and $882 17,513 13,457
Inventories 1,202 1,252
Assets held for sale XXXXXXXXXX
Prepaid expenses and other 3,918 2,034
Total cu
ent assets 26,395 22,355
Answered Same Day Aug 13, 2021

Solution

Sweety answered on Aug 15 2021
143 Votes
Q1
    Q1. Z Financial (20 points)
                                        Use these accounts for JEs:
    a.    Journal entry on issue of Series A Bonds                                Bonds Payable
            DEBIT    CREDIT                        Cash
    Dr.    Cash    100,000,000                            Interest Expense
    Cr.    Bonds Payable        100,000,000                        Gain/(Loss) on retirement of Bond
        (Issue of $100 million of Series A bonds)
    b.    Market value of Series A bonds on retirement date (Jan 2016)
        Term (remaining years)    3 YEARS
        Interest payments per year    1950000
        Periods    12
        Annual yield    4.100%
        Yield per period    1.025%
        Coupon rate    3.900%
        Face value    50,000,000.0
        Coupon $ per period    487,500.0
        Bond Value (Show 2 decimal places)    49,798,135.00
        Journal Entry for retirement:    DEBIT    CREDIT
    Dr.    Bonds Payable    49,798,135.00
    Cr.    CASH        49,798,135.00
    Cr.
        Note: Book value is $100 since the bond was issued at par, so it will always be at par.
    c.    Issue price of Series B bonds: (Jan 2016)
        Term (remaining years)    3 YEARS
        Interest payments per year    2,000,000.00
        Periods    6.00
        Annual yield    4.100%
        Yield per period    2.050%        Time    Interest    Payment    Bonds P
        Coupon rate    4.000%        0
        Face value    50,000,000.00        1    1000000.00    1000000.00
        Coupon $ per period    1,000,000.00            (2 decimal places)
        Bond Value (Show 2 decimal places)    49,911,900.00
        Journal Entry for issue:    DEBIT    CREDIT
    Dr,    Cash    50,000,000.00
    Cr.    Bonds Payable        50,000,000.00
    d.    Journal for first coupon (June 30):    DEBIT    CREDIT
    Dr.    Interest Expense    1,000,000.00
    Cr.    Cash        1,000,000.00
    Cr.
Q2
    Q2. For You Inc. (12 Points)
    a. Calculate depreciation expense
    Value of ROU asset (from below)    $450,000.00
    Lease period (months) - from below    72
    Depreciation per period (month)    6,250.00
    Depreciation per year    75,000.00
    Interest rate (per annum)    4.500%
    Number of payments per year    12
    Lease period (years)    6
    Total number of payments    72
    Interest rate per period    0.375%
    Monthly payment    7,000.00
    Lease value (PV) [Report as positive number]    387,021.60
    Lease value    430,000.00
    Payment at inception credited to asset value    10,971.83
    Value of ROU asset    440,971.83
    b. To calculate the split of lease payments into interest and principal repayment, first creatte the amortization table.
    Total Payment during 2019    84,000.00
    Interest payment component    7,066.60    HINT: Sum E80 to E91 from Table below.
    Principal repayment component    76,933.40
    Journal Entry:    DEBIT    CREDIT
    Dr. Lease Interest    7,066.60
    Dr. Lease Obligations    76,933.40
    Cr. Cash        84,000.00
    Amortization table:
        Period    Month    Payment    Interest expense acrued    End....
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