Mgmt_200_Spring_2007_Exam_Final_Solution(4,17)

Mgmt_200_Spring_2007_Exam_Final_Solution(4,17) - Name: _...

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Name: ________________________ PUID: ________________________ Purdue University Krannert School of Management MGMT 200 – Introductory Financial Accounting Spring 2007 Final Exam – May 1, 2007 - SOLUTION This exam consists of 4 questions on 10 pages (excluding this cover page and the present value table page) for a total of 100 points. Time allowed: 90 minutes. Answer all questions. To ensure full credit and to maximize partial credit, clearly show all supporting calculations. The exam is closed book. A calculator is permitted. Present value tables are provided on the last page. GOOD LUCK . Question 1 (28 points) ________ Question 2 (24 points) ________ Question 3 (24 points) ________ Question 4 (24 points) ________ TOTAL (100 points) ________
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Question 1. Bonds Payable (28 points) PART A: SiClone Corporation issues 20% coupon bonds on January 1, 2007. The bonds have a face value of $500,000, interest is payable annually on December 31, and have a term of fifteen years. The market rate of interest on January 1, 2007 is 11%. Required: a. At what price (where par = 100) would the 20% bonds be issued? Proceeds = 100,000 (PVA, n=15, i=11%) + 500,000 (PV, n=15, i=11%) = 10,000 (7.1909) + 500,000 (.2090) = 823,590 Price = 823,590 / 500,000 = 164.72 b. Prepare the journal entry to record the issuance of the 20% coupon bonds on January 1, 2007. Cash 823,590 Premium on bonds payable 323,590 Bonds payable 500,000 c. Prepare the journal entry to record interest expense and the interest payment on the 20% coupon bonds on December 31, 2007, using the effective interest rate method. Interest expense = 823,590 x .11 = 90,595 Interest expense 90,595 Premium on bonds payable 9,405 Cash 100,000 d. Prepare the journal entry to record interest expense and the interest payment on the 20% coupon bonds on December 31, 2007, using the straight-line amortization method. Premium amortization = 323,590 / 15 = 21,573 Interest expense 78,427 Premium on bonds payable 21,573 Cash 100,000 Question 1 continued over . . . Mgmt 200 – Final Exam – Spring 2007 – page 1
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Question 1 continued. PART B: Tandory Corporation issues bonds on January 1, 2007 at a price of 79.87. The bonds have a face value of $1,000,000, interest is payable annually on December 31, have a coupon rate of 5%, and a market yield of 8%.
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This note was uploaded on 11/22/2009 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue University.

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Mgmt_200_Spring_2007_Exam_Final_Solution(4,17) - Name: _...

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