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Unformatted text preview: Student Name ___________________________ BUS 208 A, B, C or D (circle one ) Fall 2008, AUBG HOMEWORK N. 3 (LO 5 from Chap. 9, Chap. 12, and Chap. 14) Part I. Notes Receivable. (10 points) Look at pages 420 – 423. How much would be the dollar amount interest on a 6-month, 9%, $3,000 note receivable? ________________________________________________ What is maturity value composed of? _________________________________________ In the June 1 journal entry on the bottom of page 422, why do they credit accounts receivable for $4,000, i.e. to zero out what? _______________________________________________________________________ _ What did they multiply to come up with that $4,000? _____________________________ Why is Interest Income credited on page 423 under “Recording a Dishonored Note?” _______________________________________________________________________ _ _______________________________________________________________________ _ The Sept. 30 adjusting entry on page 423 represents an accrual. True ______ False _____ Part II. Time Value of Money. (25 points) Question 1: 1 Use the present value tables in the Appendix of the textbook to calculate the issue price of a $800,000 bond in each of the following independent cases, assuming that interest is paid semiannually at the end of each period: a) A six-year, 7% bond issue; the market interest rate on the date of issue is 6%. Answer: ____________________ b) An eight-year, 8% bond issue; the market interest rate on the date of issue is 6%. Answer: ____________________ c) A nine-year, 10% bond issue; the market interest rate on the date of issue for similar bonds was also 10%. Answer: ___________________ Question 2: Using the math formulae for PV of a lump sum, FV of a lump sum, PV of an ordinary annuity or FV of an ordinary annuity that we discussed in class, calculate the issue price of a $50,000 bond that matures in four years from date of issue. Assume that interest is paid semi-annually at the end of each period. The coupon rate (also called stated rate or face rate) is 4%. The market rate (also called effective rate or yield) on the day of issue is 3%. Hint: remember you have to discount two cash flows and then sum them up. Answer: ________________________ Would your answer to Question 2 above be exactly the same if you had used the tables in the textbook’s appendix rather than the math formulae? _______ Why? ______________________________________________________________ What would be the journal entry on the date of the bond sale, i.e. of the bond issue? _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ ___ Is the bond sold at a discount or premium? _______________ Why?...
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