9 - Effective-Interest Amort = Evident from the...

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P10-9 Interest: $2,000,000 * 10% = $200,000 Present Value: $2,000,000 * 0.6806 = 1,361,200 200,000 * 3.9927 = 798,540 $2,159,740 2006 2007 Interest XP $168,052 $168,052 (2,159,740 – 2,000,000 = 159,740/5years = 31,948) (200,000 – 31,948) Cash Paid $200,000 $200,000 Bonds Payable $2,127,792 $2,095,844 (2,159,740 – 31,948 – 2,127,792) (2,127,792 – 31,948 = 2,095,844) P10-10 Interest: $500,000 * 8% = $40,000 Present Value: $500,000 * 0.7473 = $375,650 400,000 * 4.2124 = 168,496 $542,146 2006 2007 Interest XP $32,529 $32,081 (542,146 * 6% = 32,529) ([542,146 – (40,000 – 32,529) * 6%] = 32.081) Cash Paid $40,000 $40,000 Bonds Payable $534,675 $528,756 (542,146 – 7,471 = 524,675)(34,675 – [40,000 – 32,081] = 526,756) P10-12 DATE CASH INTEREST AMORTIZATION BALANCE 1/1/06 - - - $6,101 12/31/06 450 427 23 $6,078 12/31/07 450 425 25 $6,053 12/31/08 450 424 26 $6,027 12/31/09 450 422 27 6,000 Maturity Amount = 6,000 from balance at the end of the last year Cash Received = $6,101 from balance at January 1, 2006 Premium = $6,101 - $6,000 = $101 Cash Disbursed for Interest = $450 per period * 4years = $1,800
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Unformatted text preview: Effective-Interest Amort. = Evident from the computations – the amount is different each year Stated rate of interest = $450 / $6,000 = 7.5% Yield of Interest = $427 / $6,101 = 7% Interest Expense = 2006: $427 | 2007: $425 | 2008: $424 | 2009: $422 2006 2007 2008 2009 Long-Term Liabilities: Bonds Payable, 7.5% Maturity amount + Premium 6,078 6,053 6,027 6,000 P10-13 Bonds are recorded based on ISSUE PRICE and not adjusted for market value changes. The market value changes for many reasons – especially changes in interest rates. The market value can also change as the result of changes in a company’s risk value (if there was a higher chance of bankruptcy the bonds would decline in value.) Hilton will have to pay the current market value because there is no call option. Bonds Payable (-L) 1,132,500,000 Loss on Retirement (-SE) 41,000,000 Cash (-A) 1,173,500,000...
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This note was uploaded on 05/07/2008 for the course H ADM 121 taught by Professor Ddittman during the Spring '07 term at Cornell.

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9 - Effective-Interest Amort = Evident from the...

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