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# quiz 3 - 1 Limeway Company issues \$5,000,000 6 5-year bonds...

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1. Limeway Company issues \$5,000,000, 6%, 5-year bonds dated January 1, 2007 on January 1, 2007. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2.5% 3.0% 5.0% 6.0% Present value of a single sum for 5 periods .88385 .86261 .78353 .74726 Present value of a single sum for 10 periods .78120 .74409 .61391 .55839 Present value of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236 Present value of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009 a. \$5,000,000 b. \$5,216,494 c. \$5,218,809 d. \$5,217,308 63. c (\$5,000,000 × .78120) + (\$150,000 × 8.75206) = \$5,218,809. 2. A company issues \$20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2007. Interest is paid on June 30 and December 31. The proceeds from the bonds are \$19,604,145. Using effective-interest amortization, how much interest expense will be recognized in 2007? 67. c (\$19,604,145 × .04) + (\$19,608,310 × .04) = \$1,568,498 3. The December 31, 2006, balance sheet of Eddy Corporation includes the following items: 9% bonds payable due December 31, 2015 \$1,000,000 Unamortized premium on bonds payable 27,000 The bonds were issued on December 31, 2005, at 103, with interest payable on July 1 and December 31 of each year. Eddy uses straight-line amortization. On March 1, 2007, Eddy retired \$400,000 of these bonds at 98 plus accrued interest. What should Eddy record as a gain on retirement of these bonds? Ignore taxes.

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