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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 6month, 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 sixyear, 7% bond issue; the market interest rate on the date of issue is 6%. Answer: ____________________ b) An eightyear, 8% bond issue; the market interest rate on the date of issue is 6%. Answer: ____________________ c) A nineyear, 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 semiannually 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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This note was uploaded on 12/10/2009 for the course BUS 311 taught by Professor Fas during the Spring '09 term at American University in Bulgaria.
 Spring '09
 FAS
 Accounting, Interest

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