Abstract ABSTRACT: A bond exchange is a transaction in which a corporation with an outstanding bond issue offers the current bondholders a new bond in exchange for the outstanding bonds. Bond exchanges affect firms by: (1) altering the cash payments to bondholders, (2) increasing reported earnings, (3) improving financial ratios such as debt/equity, and (4) affecting tax obligations. Although bond exchanges are fairly common, especially in the airline industry, these transactions may be difficult to analyze. This paper reviews the sequence of public disclosures involving an exchange offer, illustrates a present value method for evaluating bond exchanges, and compares the reported results with the "economic" results obtained from this method. Eastern Airlines' 1980 bond exchange is used for illustrative purposes.

Abstract ABSTRACT: Accounting policy makers and taxation authorities have been concerned with the understatement of depreciation expense that can accompany the use of generally accepted depreciation procedures. In addressing this concern, the taxation authorities have adopted a new method of historical cost depreciation known as the Accelerated Cost Recovery System (ACRS). Accounting policy makers, on the other hand, have addressed the "underdepreciation" issue with an experimental program of current cost depreciation disclosure. This paper presents a comparative analysis of the depreciation charges associated with the ACRS and current cost depreciation systems. The results of the analysis show that, for a variety of growth and price change conditions, the ACRS and current cost procedures can provide similar depreciation charges. As such, the ACRS techniques can alleviate considerably the "underdepreciation" effects that have been associated with some of the traditional historical cost depreciation methods.

Abstract General Electric uses the equity method of financial accounting for its subsidiary, General Electric Credit Corporation, but consolidates it on the tax return. This note disentangles the amounts and sources of cash payments and refunds for income taxes of the two companies, with special emphasis on the effect of tax-transfer leases. It shows how to estimate the elements of the costs and benefits of tax-transfer leasing. Through tax-transfer leases, General Electric paid its lessees about $350 million in 1981 for benefits estimated to be worth on the order of $500 million, net. These transactions contributed to GE's being able to arrange its tax affairs to receive a refund of $104 million from the U. S. Treasury, while paying over $300 million in taxes to foreign governments and $54 million to state and local governments.

Abstract Reviews the book "Essays in Accounting Theory," by Carl T. Devine.