PROBLEM 7.

5 1

Problem 7.5

Le’Undra Lee

ACG5175

Dr. Slade

March 31, 2020

PROBLEM 7.5 2

Part A Solution

Shareholder's Equity
Assets AOCI RE (Millions)
(Million Liabilities CC(Millio (Milli
  s)  =   (Millions) +  ns) ons)
Interest
          Expense $27

December 31 Interest
2013 Cash $867.33       Expense $27
AIPC
December 31 $27.000 Promissory Promissor
2014 Cash 0 Note $900.00 y Note    
December 31
2015 Cash $27.00   $32.67    
           
           
(Million
Journal entries s)        
Cash (Cr)   $867.33      
Cash   $27.00      
Cash   $27.00      
AIPC Note   $32.67      
AIPC Note   $900,000     
Interest Exp    $27    
Interest Exp          $27      

Part B Solution

The involvement of foreign operation increased the risk leading to an increase in the interest rate

to 5% by the creditors. The amount reported on the balance sheet is calculated as shown below.

2 $ 27 $ 900
=∑ n=1 +
1+5 % (1+ 5 %)2

2
∑ ❑n=1=$ 25.72+ 816.32
=$842.02 million
Coca-Cola will report $842.02 million in its balance sheet as long-term liabilities and 900million
in the financial statement for the promissory note.
PROBLEM 7.5 3

Part C Solution
If Coca-Cola choses fair value method, the amount reported on the long-term liabilities will be
$900 million and the fair value for the promissory note will be $842.02 million.