Chapter 14 - Problem 14-1B (50 minutes) Part 1 a. Cash Flow...

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Unformatted text preview: Problem 14-1B (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 14-1B (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 14-2B (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 straight-line 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 Straight-line discount amortization = $390,000 / 20 semiannual periods = $19,500 (c) Bond interest expense = $170,000 + $19,500 = $189,500 Problem 14-2B (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...
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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.

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Chapter 14 - Problem 14-1B (50 minutes) Part 1 a. Cash Flow...

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