Connect Homework Chapter 14 Acct 302.docx

Connect Homework Chapter 14 Acct 302.docx - CONNECT...

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CONNECT HOMEWORK CHAPTER 14 ACCT 302 1. A company issued 6%, 10-year bonds with a face amount of $75 million. The market yield for bonds of similar risk and maturity is 7%. Interest is paid semiannually. At what price did the bonds sell? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided. Enter your answers in whole dollars. Round final answers to the nearest whole dollar.) Table values are based on: n = 20 i = 3.5% Cash Flow Amount Present Value Interest $2,250,000 $31,977,900 Principal $75,000,000 37,692,750 Price of bonds $69,670,650 Explanation Interest $ 2,250,000 ¥ × 14.21240* =$ 31,977,900 Principal $ 75,000,000 × 0.50257 * * = 37,692,750 Present value (price) of the bonds $ 69,670,650 ¥ [6 ÷ 2] % × $75,000,000 * Present value of an ordinary annuity of $1: n = 20, i = 3.5%. (PVA of $1) ** Present value of $1: n = 20, i = 3.5%. (PV of $1) 2. On January 1, a company issued 6%, 15-year bonds with a face amount of $100 million for $90,804,150 to yield 7%. Interest is paid semiannually. What was interest expense at the effective interest rate on June 30, the first interest date? (Enter your answers in whole dollars. Round percentage answers to 1 decimal place (e.g., 0.0234 should be entered as 2.3).) Amount x Effective Rate (%) = Interest Expense $90,804,150 x 3.50% = $3,178,145.25 3. On January 1, a company issued 3%, 10-year bonds with a face amount of $80 million for $73,459,316 to yield 4%. Interest is paid semiannually. What was the interest expense at the effective interest rate on the December 31 annual income statement? (Enter your answers in whole dollars. Round your intermediate calculations to the nearest dollar amount.)
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Period-End Cash Interest Paid Bond Interest Expense Discount Amortization Carrying Value January 1 $73,459,316 June 30 $1,200,000 $1,469,186 $269,186 73,728,502 December 31 1,200,000 1,474,570 274,570 74,003,072 Total $2,943,756 Explanation Interest will be the effective rate times the outstanding (book value) balance: Date General Journal Debit Credit June 30 Interest expense (2% × $73,459,316) 1,469,186 Discount on bonds payable (difference) 269,186 Cash (1.5% × $80,000,000) 1,200,00 0 Dec. 31 Interest expense (2% × [$73,459,316 + $269,186]) 1,474,570 Discount on bonds payable (difference) 274,570 Cash (1.5% × $80,000,000) 1,200,00 0 Interest expense for the year: $1,469,186 + $1,474,570 = $2,943,756 4. When Patey Pontoons issued 6% bonds on January 1, 2018, with a face amount of $760,000, the market yield for bonds of similar risk and maturity was 11%. The bonds mature December 31, 2021 (4 years). Interest is paid semiannually on June 30 and December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds at January 1, 2018.
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  • Fall '18
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