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    Liabilities

    1. On the Balance Sheet:

    Current Liabilities - due within one year or normal operating cycle, whichever is longer,

    with the use of current assets

    Liabilities Classified

    Relatively lessCertain Certain Uncertain

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    2. Contingent Liabilities

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    3. Bonds the most common type of long-term debt. The main purpose is to borrow forthe long-term when the amount needed is too large for one lender. Bonds are issued indenominations of $100, $1,000, or $10,000 face value, usually with semi-annual cashinterest payments. (Therefore the indebtedness is shared by investing units.)

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    FEDEX CORPORATION 2004 ANNUAL REPORT

    NOTE 18: LEGAL PROCEEDINGSOperations in 2002 were significantly affected by the terroristattacks on September 11, 2001. During 2002, we recognized a total of $119 million of compensation under the AirTransportation Safety and System Stabilization Act (the Act), of which $101 mill ion had been received as of May 31, 2004. Theamounts recognized were for our estimate of losses we incurred as a result of the mandatory grounding of our aircraft and forincremental losses incurred through December 31, 2001. All amounts recognized were reflected as reduction of operatingexpense under the caption Airline stabilization compensation.

    In the fourth quarter of 2003, the Department of Transportation (DOT) asserted that we were overpaid by $31.6 million and hasdemanded repayment. We have filed requests for administrative and judicial review. We received an opinion from the District ofColumbia U.S. Court of Appeals stating that most of the determinations that we requested were not yet ripe for decision and theCourt will not rule prior to final determination by the DOT and exhaustion of administrative remedies.

    Pursuant to the Federal Aviation Administration reauthorization enacted during the third quarter of 2004, the General AccountingOffice submitted a report to Congress on June 4, 2004, on the criteria and procedures used by the Secretary of Transportation

    under the Act. Issuance of the report frees the DOT to make a final determination on our claim and also reinforces theCongressional directive to the DOT to refer any remaining disputed claims to an administrative law judge upon an affectedclaimants request.

    We agreed to mediation with the DOT, but it did not result in a resolution of the dispute. We will continue to pursue our claim forcompensation under the Act. We believe that we have complied with all aspects of the Act, that it is probable we will ultimatelycollect the remaining $18 million receivable and that we will not be required to pay any portion of the DOTs $31.6 milliondemand. We cannot be assured of the ultimate outcome; however, it is reasonably possible that a material reduction to the $119million of compensation we have previously recognized under the Act could occur. Based on the DOTs assertion, the range forpotential loss on this matter is zero to $49.6 million. We are a defendant

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    Present ValuesExample 1:Determining a future amount: If you have $100 now (at time t=0) and you invest it at 6% interest forone year, how much will you have?

    AmountIn One Year0 1

    $100 ?Present value (PV) = amount at time zeroFuture Value (FV) = amount in the future

    This problem can be solved by:PV(1+i) = FV (1)100(1.06) = $106

    Example Two:Determining a future amount: How much will you have in two years?AmountIn Two Years0 1 2

    $100 ?This problem can be solved by:

    PV(1+i)(1+i) = FVPV(1+i)

    2= FV (2)

    100(1.06)2= $112.36

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    Example Three:Determining the Present Value of a Single Amount: Suppose you have $112.36 in two years, howmuch is it worth to you today at 6% interest?

    Present Value of a Single Amount0 1 2

    ? $112.36

    Use equation (2)PV(1+i)

    2=FV but solve for PV,

    PV0=

    ( )

    +2

    1

    1

    i

    FV2 (3) (use Table A.2 on pages 746-7) (112.36.89)=100

    Example Four:Determining the Present Value of an annuity: Suppose you receive $100 at the end of each of thenext two years, how much is it worth to you today at 6% interest? (note that all future values are equal; therefore, this

    is a present value of an annuity, FV=PMT)

    Present Value of an annuity0 1 2

    ? $100 $100

    PV =

    ( )

    + 11

    1

    i

    FV1+

    ( )

    + 21

    1

    i

    FV2 (4) (use Table A.4 on pages 748)

    PV = PMT (1.833) = 100(1.833)= $183.30

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    Two types of problems in Accounting

    1. Present value of a single future dollar amounts

    2. Present value of an annuity (equal future payments)

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    This table contains factors that convert future cash flows into the present value of those cash flows.

    Period 1% 4% 6% 8% 10% 15% 20%1 0.9901 0.9615 0.9434 0.9259 0.9091 0.8696 0.83332 0.9803 0.9246 0.8900 0.8573 0.8264 0.7561 0.69443 0.9706 0.8890 0.8396 0.7938 0.7513 0.6575 0.57874 0.9610 0.8548 0.7921 0.7350 0.6830 0.5718 0.48235 0.9515 0.8219 0.7473 0.6806 0.6209 0.4972 0.4019

    6 0.9420 0.7903 0.7050 0.6302 0.5645 0.4323 0.33497 0.9327 0.7599 0.6651 0.5835 0.5132 0.3759 0.27918 0.9235 0.7307 0.6274 0.5403 0.4665 0.3269 0.23269 0.9143 0.7026 0.5919 0.5002 0.4241 0.2843 0.193810 0.9053 0.6756 0.5584 0.4632 0.3855 0.2472 0.1615

    11 0.8963 0.6496 0.5268 0.4289 0.3505 0.2149 0.134612 0.8874 0.6246 0.4970 0.3971 0.3186 0.1869 0.112213 0.8787 0.6006 0.4688 0.3677 0.2897 0.1625 0.093514 0.8700 0.5775 0.4423 0.3405 0.2633 0.1413 0.077915 0.8613 0.5553 0.4173 0.3152 0.2394 0.1229 0.0649

    16 0.8528 0.5339 0.3936 0.2919 0.2176 0.1069 0.054117 0.8444 0.5134 0.3714 0.2703 0.1978 0.0929 0.045118 0.8360 0.4936 0.3503 0.2502 0.1799 0.0808 0.037619 0.8277 0.4746 0.3305 0.2317 0.1635 0.0703 0.0313

    20 0.8195 0.4564 0.3118 0.2145 0.1486 0.0611 0.0261

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    This table contains factors that convert equal future payments into the present value of those cash flows.

    Period 1% 4% 6% 8% 10% 15% 20%1 0.9901 0.9615 0.9434 0.9259 0.9091 0.8696 0.83332 1.9704 1.8861 1.8334 1.7833 1.7355 1.6257 1.52783 2.9410 2.7751 2.6730 2.5771 2.4869 2.2832 2.10654 3.9020 3.6299 3.4651 3.3121 3.1699 2.8550 2.58875 4.8534 4.4518 4.2124 3.9927 3.7908 3.3522 2.9906

    6 5.7955 5.2421 4.9173 4.6229 4.3553 3.7845 3.32557 6.7282 6.0021 5.5824 5.2064 4.8684 4.1604 3.60468 7.6517 6.7327 6.2098 5.7466 5.3349 4.4873 3.83729 8.5660 7.4353 6.8017 6.2469 5.7590 4.7716 4.031010 9.4713 8.1109 7.3601 6.7101 6.1446 5.0188 4.1925

    11 10.3676 8.7605 7.8869 7.1390 6.4951 5.2337 4.327112 11.2551 9.3851 8.3838 7.5361 6.8137 5.4206 4.439213 12.1337 9.9856 8.8527 7.9038 7.1034 5.5831 4.532714 13.0037 10.5631 9.2950 8.2442 7.3667 5.7245 4.610615 13.8651 11.1184 9.7122 8.5595 7.6061 5.8474 4.6755

    16 14.7179 11.6523 10.1059 8.8514 7.8237 5.9542 4.729617 15.5623 12.1657 10.4773 9.1216 8.0216 6.0472 4.774618 16.3983 12.6593 10.8276 9.3719 8.2014 6.1280 4.812219 17.2260 13.1339 11.1581 9.6036 8.3649 6.1982 4.8435

    20 18.0456 13.5903 11.4699 9.8181 8.5136 6.2593 4.8696

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    BondsA. Bond Definitions - interest rates

    i) Stated, coupon, or nominal rate =

    ii) Effective, yield, or market rate=

    Cash interest =

    Interest expense =

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    B. Bond Prices - an exampleExample: Suppose you issue a 3-year, 12%, $1,000 bond that pays semiannualinterest. How much will the bond sell for if the bond yield is 16%? 8%?

    What are the bond's cash flows?

    To Yield 8%

    To Yield 16%

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    D. Bond amortization tables - 8% bond yieldEFFECTIVE INTEREST METHOD (Method One)

    Premium Amortization

    (1) (2) (3) (4)Payment Interest Carrying

    Number Expense Cash Amortization Value$1,105.00

    1 60

    2 60

    3 60

    4 60

    5 60

    6 60 1,000.00

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    STRAIGHT-LINE METHOD (Method Two)(1) (2) (3) (4)

    Payment Interest CarryingNumber Expense Cash Amortization Value

    $1,105.00

    1 60

    2 60

    3 60

    4 60

    5 606 60 1,000.00

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    E.Interest Journal entries

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    EFFECTIVE INTEREST METHODDiscountAmortization

    (1) (2) (3) (4)Payment Interest Carrying

    Number Expense Cash Amortization Value

    $907.541 72.60 60 12.60 920.14

    2 73.61 60 13.61 933.75

    3 74.70 60 14.70 948.46

    4 75.88 60 15.88 964.33

    5 77.15 60 17.15 981.48

    6 78.52 60 18.52 1,000.00

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    F. Early Extinguishments of DebtSuppose that a bond was listed on the Balance Sheet with a carrying value of $960. Theface value was $1,000 with a discount of $40. The company that issued the bond

    purchased the bond on the market and retired the bond. The company paid $900 cash.What is the impact on the Income Statement?

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    G. Bond disclosuresa.

    b.

    c.

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    Debt Ratios

    1. Level of Debt

    2. Ability to pay debt

    a. Times interest earned =ExpenseInterest

    taxesandinterestbeforeEarnings

    b. Coverage ratios =

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    GAYLORD ENTERTAINMENT 1998-12-31: Balance Sheet

    1998/12/31 1997/12/31

    Current assets:

    Cash $18,746,000 $8,712,000

    Trade receivables, less allowance of $5,517 and $4,031, respectively $94,429,000 $82,152,000

    Inventories $27,018,000 $23,206,000

    Other assets $49,009,000 $37,311,000Total current assets $189,202,000 $151,381,000

    Property and equipment, net of accumulated depreciation $586,898,000 $550,267,000

    Intangible assets, net of accumulated amortization $117,529,000 $84,419,000

    Investments $78,140,000 $73,991,000

    Long-term notes and interest receivable $9,015,000 $233,112,000

    Other assets $31,208,000 $24,392,000

    Total assets $1,011,992,000 $1,117,562,000

    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:

    Current portion of long-term debt $6,269,000

    Accounts payable and accrued liabilities $115,837,000 $127,694,000

    Total current liabilities $122,106,000 $127,694,000

    Long-term debt $276,712,000 $388,397,000

    Deferred income taxes $52,747,000 $32,579,000Other liabilities $33,039,000 $42,710,000

    Minority interest $2,228,000 $9,958,000

    Commitments and contingencies

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    Stockholders' equity:

    Preferred stock, $.01 par value, 100,000 shares $0 $0

    authorized, no shares issued or outstanding

    Common stock, $.01 par value, 150,000 shares $328,000 $327,000

    authorized, 32,808 and 32,741 shares issued

    and outstanding, respectively

    Additional paid-in capital $500,434,000 $498,504,000Retained earnings $26,699,000 $16,837,000

    Other stockholders' equity ($2,301,000) $556,000

    Total stockholders' equity $525,160,000 $516,224,000

    Total liabilities and stockholders' equity$1,011,992,00

    0$1,117,562,00

    0

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    GAYLORD ENTERTAINMENT CO /DE 10-K 1998-12-31

    Annual maturities of long-term debt, including capital lease

    obligations, are as follows:

    1999 6,269

    2000 9,318

    2001 4,128

    2002 259,225

    2003 1,577

    Years thereafter 2,464

    Total $282,981

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    FIN NCI L INSTRUMENTS

    Estimated fair values and carrying amounts of the Company's financial

    instruments at December 31, 1998 and 1997 are as follows:

    1998 1997

    Fair Carrying Fair Carrying

    Value Amount Value Amount

    Long-term notes & interest receivable $9,015 $9,015$234,43

    3$233,11

    2

    Debt $282,981 $282,981

    $388,39

    7

    $388,39

    7

    The fair value estimates were determined using discounted cash flow

    analyses. For fixed-rate long-term notes receivable, the discount rate was

    determined based upon similar instruments. The Company's carrying value of its

    variable-rate debt and long-term notes receivable approximates fair value. The

    carrying amount of short-term financial instruments (cash, trade receivables,accounts payable and accrued liabilities) approximates fair value due to the

    short maturity of those instruments. Credit risk on trade receivables is

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    minimized by the large and diverse nature of the Company's customer base.

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    Why might a bond be issued at a premium or discount?

    Example:Three ways to borrow $10,000 cash when the market rate is 6%(semiannual).

    Face value = $10,000, stated rate =6%, Market rate = 6%

    Interest Amort. Carrying

    Expense CashDiscount Value

    0 10,000

    1 300 300 0 10,000

    2300 300

    0 10,000

    3 300 300 010,000

    4 300 300 0 10,000

    5 300 300 0 10,000

    6 300 300 0 10,000-

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    Face value = $11,941, stated rate =0%, Market rate = 6%

    Interest Amort. Carrying

    Expense Cash Discount Value

    0 10,000

    1 300 0 300 10,300

    2 309 0 309 10,6093 318 0 318 10,927

    4 0

    5 0

    6 0 11,941

    Face value = $9,500, stated rate =7.937%, Market rate = 6%

    Interest Amort. CarryingExpense Cash Premium Value

    0 10,000

    1 300 377 77 9,923

    2 298 377 79 9,844

    3 295 377 82 9,762

    4 377

    5 3776

    377 9,500

    -

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