Assignment 4 key

# Assignment 4 key - ACCT 2301 FALL 2008 Li 1 Calculate the...

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ACCT 2301 FALL 2008 Li Assignment 4 Solution 1 1. Calculate the selling price for the following bonds. a. Company NOD sold 5-year bonds with a face value of \$100,000 at 1/1/2008. The bonds carry a coupon rate of 5% and pay interests every 6 months. The market interest rate at the time of sale was 6%. PV(\$100,000) + PVA(\$100,000x5% x 6/12), with r=3%, n=10; Selling price= \$100,000x0.7441 + 2,500x8.5302 = 74,410+21,326=\$95,736 b. Company NOD sold 8-year bonds with a face value of \$1,000,000 at 7/1/2006. The bonds carry a coupon rate of 7% and pay interests every year. The market interest rate at the time of sale was 4%. PV(\$1,000,000) + PVA(\$1,000,000x7%), with r=4%, n=8; Selling price= \$1,000,000x0.7307 + 70,000x 6.7327 = 730,700+471,289=\$1,201,989 2. On January 1, 2006 Anthony, Inc. issued a bond of \$10,000 for \$10,900 cash. The bond has a life of 5 years and 8% coupon rate. The bond was dated on January 1, 2006. Interests are accrued annually and paid on January 15 th the following year. The market interest rate was 6%. The company provides financial statements on a calendar year basis, and it uses effective-interest method for amortization on bonds. You are to complete the following entries: (round to the nearest dollar.) (a) Was the bond issued at par, at a premium, or at a discount? At a premium (b) Journal entry at January 1, 2006--Date of issuance: Dr. Cash \$10,900 Cr. Bonds Payable \$10,000 Cr. Premium on Bonds Payable 900 (b) Journal entry at December 31, 2006: Dr. Interest Expense (\$10,900 x 6%=65) 654 Dr. Premium on Bonds Payable

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Assignment 4 key - ACCT 2301 FALL 2008 Li 1 Calculate the...

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