Working Paper 231 - Appendix 1

Working Paper 231

Appendix 1

Method 1 Journal Entries to Exhibit 1 Swap

Traditional OBSF Solutions for Company A

Bob Jensen at Trinity University

			Debit	Credit
Company A
Year 1	January 1	Cash	10,000,000
		Bonds payable		10,000,000
	December 31	Interest expense	950,000
		Cash		950,000
		Cash	150,000
		Interest expense		150,000
Company A
Year 2	December 31	Interest Expense	950,000
		Cash		950,000
		Cash	100,000
		Interest expense		100,000
Company A
Year 3	December 31	Interest expense	950,000
		Cash		950,000
		Cash	50,000
		Interest expense		50,000
Company A
Year 4	December 31	Interest expense	950,000
		Cash		950,000
		Cash	0
		Interest expense		0
Company A
Year 5	December 31	Interest expense	950,000
		Cash		950,000
		Interest expense	50,000
		Cash		50,000
Company A
Year 6	December 31	Interest expense	950,000
		Cash		950,000
		Interest expense	100,000
		Cash		100,000
Company A
Year 7	December 31	Interest expense	950,000
		Cash		950,000
		Interest expense	150,000
		Cash		150,000
	December 31	Bonds payable	10,000,000
		Cash		10,000,000

Method 1 Journal Entries to Exhibit 1 Swap

Traditional OBSF Solutions for Company B

			Debit	Credit
Company B
Year 1	January 1	Cash	10,000,000
		Notes payable		10,000,000
	December 31	Interest expense	950,000
		Cash		950,000
		Interest expense	150,000
		Cash		150,000
Company B
Year 2	December 31	Interest expense	1,000,000
		Cash		1,000,000
		Interest expense	100,000
		Cash		100,000
Company B
Year 3	December 31	Interest expense	1,050,000
		Cash		1,050,000
		Interest expense	50,000
		Cash		50,000
Company B
Year 4	December 31	Interest expense	1,100,000
		Cash		1,100,000
		Interest expense	0
		Cash		0
Company B
Year 5	December 31	Interest expense	1,150,000
		Cash		1,150,000
		Cash	50,000
		Interest expense		50,000
Company B
Year 6	December 31	Interest expense	1,200,000
		Cash		1,200,000
		Cash	100,000
		Interest expense		100,000
Company B
Year 7	December 31	Interest expense	1,250,000
		Cash		1,250,000
		Cash	150,000
		Interest expense		150,000
	December 31	Notes payable	10,000,000
		Cash		10,000,000