This preview shows pages 1–5. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Problem 141B (50 minutes) Part 1 a. Cash Flow Table Table Value* Amount Present Value Par value................. B.1 0.6139 $90,000 $55,251 Interest (annuity).... B.3 7.7217 5,400** 41,697 Price of bonds........ $96,948 Bond Premium....... $ 6,948 **$90,000 x 0.12 x = $5,400 * Table values are based on a discount rate of 5% (half the annual market rate) and 10 periods (semiannual payments). b. 2008 Jan. 1 Cash............................................................ 96,948 Premium on Bonds Payable............... 6,948 Bonds Payable..................................... 90,000 Sold bonds on stated issue date. Part 2 a. Cash Flow Table Table Value* Amount Present Value Par value................. B.1 0.5584 $90,000 $50,256 Interest (annuity).... B.3 7.3601 5,400 39,745 Price of bonds........ $90,001** * Table values are based on a discount rate of 6% (half the annual market rate) and 10 periods (semiannual payments). (Note: When the contract rate and market rate are the same, the bonds sell at par and there is no discount or premium.) **Difference due to rounding b. 2008 Jan. 1 Cash............................................................ 90,000 Bonds Payable..................................... 90,000 Sold bonds on stated issue date. Problem 141B (Concluded) Part 3 a. Cash Flow Table Table Value* Amount Present Value Par value................. B.1 0.5083 $90,000 $45,747 Interest (annuity).... B.3 7.0236 5,400 37,927 Price of bonds........ $83,674 Bond discount........ $ 6,326 * Table values are based on a discount rate of 7% (half the annual market rate) and 10 periods (semiannual payments). b. 2008 Jan. 1 Cash............................................................ 83,674 Discount on Bonds Payable..................... 6,326 Bonds Payable..................................... 90,000 Sold bonds on stated issue date. Problem 142B (40 minutes) Part 1 2007 Jan. 1 Cash............................................................ 3,010,000 Discount on Bonds Payable..................... 390,000 Bonds Payable..................................... 3,400,000 Sold bonds on stated issue date. Part 2 [Note: The semiannual amounts for (a), (b), and (c) below are the same throughout the bonds life because the company uses straightline amortization.] (a) Cash Payment = $3,400,000 x 10% x 6/12 year = $170,000 (b) Discount = $3,400,000  $3,010,000 = $390,000 Straightline discount amortization = $390,000 / 20 semiannual periods = $19,500 (c) Bond interest expense = $170,000 + $19,500 = $189,500 Problem 142B (Continued) Part 3 Twenty payments of $170,000......... $3,400,000 Par value at maturity........................ 3,400,000 Total repaid....................................... 6,800,000 Less amount borrowed.................... (3,010,000 ) Total bond interest expense............ $3,790,000 or: Twenty payments of $170,000 ........ $3,400,000 Plus discount.................................... 390,000 Total bond interest expense............ $3,790,000...
View
Full
Document
This note was uploaded on 11/13/2010 for the course ACCT ACCT 2 taught by Professor Chunlu during the Summer '08 term at Santa Monica.
 Summer '08
 ChunLu
 Accounting

Click to edit the document details