2293 Chapter 10 Textbook Solutions 292

2293 Chapter 10 Textbook Solutions 292 - Chapter 10...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 10 Textbook Solutions 10-21 a) 1 st issue: $500,000 X 5% = $25,000 2 nd issue: $1,000,000 x 6.5% = 65,000 Total 2006 payments $90,000 b) Issue price for 1 st issue: = PV of interest payments + PV of maturity repayment = PV A F 3%,14 x $12,500 + PVF 3%,14 x $500,000 = $471,761 With a financial calculator: FV = 800,000 PMT = 24,000 N=14 i=3 Compute PV = $896,850 Issue price for 2 nd issue: = PV of interest payments + PV of maturity repayment = PV A F 3%,10 x $32,500 + PVF 3%,10 x $1,000,000 = $1,021,322 With a financial calculator: FV = 1,000,000 PMT = 32,500 N=10 i=3 Compute PV = $1,021,325 1 st issue, interest expense for 2008: $14,153 + $14,202 = $28,355 1 st issue, interest expense for 2009: $14,253 + $14,306 = $28,559 2 nd issue, interest expense for 2009: $30,640 + $30,584 = $61,224 Total interest expense for 2009 = $28,559 (1 st issue) + $61,224 (2 nd issue) = $89,783
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
b) Journal entries for 2009 July 1, 2009 Interest expense (SE) 30,640 Premium on bonds payable (L) 1,860 Cash (A) 32,500 Interest expense (SE) 14,253 Discount on bonds payable (XL) 1,753 Cash (A) 12,500 Dec. 31, 2009 Interest expense (SE) 30,584 Premium on bonds payable (L) 1,916 Interest payable (L) 32,500 Interest expense (SE) 14,306 Discount on bonds payable (XL) 1,806 Interest payable (L) 12,500 d) It is reasonable that both bond issues are sold to yield 6% because different bond issues of the same company bear the same default risk, so long as nothing significant has occurred since the first issue that would cause investors to demand a different yield rate or so long as there are no changes in market interest rates. 10-22 a) Face value of the bonds issued: $20,000,000 Interest payment = $20,000,000 x 8% x 6/12 = $800,000 10 years = 20 periods, yield rate = 6% or 3% per period Issue price of the bond: PV of interest payments + PV of maturity payment: = PV A F 3%, 20 x (800,000) + PVF 3%, 20 x $20,000,000 = 14.87747 x $800,000 + 0.55368 x $20,000,000 = $11,901,976 + $11,073,600 = $22,975,576 b) Journal entry at issue April 1, 2008: Cash (A) 22,975,576 Premium on bonds payable (L) 2,975,576 Bonds payable (L) 20,000,000
Background image of page 2
With a financial calculator: FV = 20,000,000 PMT = 800,000 N=20 i=3 Compute PV = $22,975,494 c) On June 30, 2008 it is necessary to accrue the interest expense for the three months since issue. Interest expense for the first three months:
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 8

2293 Chapter 10 Textbook Solutions 292 - Chapter 10...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online