Accounting Challenge 9.1

Accounting Decision Files

Understanding the Real Cost of Long-Term Debt

About this activity

Campus Cycle Repair · you gather the facts by interviewing, not by reading a handout.

Campus Cycle Repair is looking at long-term borrowing, and Riley is focused on the interest rate because that is the number the lender leads with. The stated rate is not the whole cost. Repayment structure, the split between interest and principal, and what the shop actually receives all factor in. Your job is to work out what this debt genuinely costs before anyone signs.

Watch the tutorial video

Length: 6 minutes, 32 seconds

Open the tutorial video in a new window

Interview Riley and Morgan

Neither character has the whole picture. Morgan can tell you what the records show; Riley can tell you why. Ask real questions, follow up on anything that does not add up, and reconcile the two accounts before you answer anything.

Riley — founder and owner. Knows the business story and what actually happened, but does not keep the books. Optimistic, cautious about debt, and candid when working from memory.
Interview Riley

Morgan — handled the accounting records. Organized, practical, and precise. Morgan knows what was recorded and how.
Interview Morgan

Questions worth asking

You may ask your own questions. These will get you started.

Riley, what decision are you considering and what would the borrowed money be used for?
Riley, what are the proposed note terms, including the amount, term, principal payments, interest rate, and first payment date?
Riley, what do you remember about the bond issue proceeds, and should I treat that memory as exact?
Morgan, what do the official records show for the bonds, including face amount, issue price, stated rate, payment dates, term, and amortization method?
Morgan, what do the records show for the existing installment note, including the principal outstanding, principal due next year, interest rate, and payment already made?
Morgan, what other year-end records do I need, such as accounts payable, total assets, and stockholders' equity?
Riley and Morgan, was any important information not tracked?
Based on what you learned from Riley and Morgan, how would the proposed borrowing change Campus Cycle Repair's liabilities and debt-to-equity ratio, and what evidence should support a cautious recommendation?

Then answer in Canvas

The questions are in Canvas, in the quiz named Accounting Challenge 9.1.

Interview both characters before you start the quiz.
The questions ask about evidence you gather in the interviews, so the tutorial video alone will not be enough.
You have one attempt, and you will get 5 questions.
Questions appear one at a time, and you cannot return to a question after you submit it.
Keep this page open in a second window so you can go back to an interview while you work.
Do not paste quiz questions into the interviews. Gather facts, then reason from them.

If something does not work

Email Dr. Tietz at wtietz@kent.edu with your section number and what happened. Do not wait until the due date has passed.