Copy of Chap014solutions2011

Copy of Chap014solutions2011 - Chapter 14 Bonds and...

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Unformatted text preview: Chapter 14 - Bonds and Long-Term Notes BRIEF EXERCISES Brief Exercise 14-1 $30,000,000 x 6% x 6 / 12 = $900,000 face annual fraction of the cash amount rate annual period interest Brief Exercise 14-2 Interest $ 2,000,000 ¥ x 23.11477 * = $46,229,540 Principal $80,000,000 x 0.30656 ** = 24,524,800 Present value (price) of the bonds $70,754,340 ¥ [5÷2] % x $80,000,000 * present value of an ordinary annuity of $1: n=40, i=3%. (Table 4) ** present value of $1: n=40, i=3%. (Table 2) Brief Exercise 14-3 The price will be the present value of the periodic cash interest payments (face amount x stated rate) plus the present value of the principal payable at maturity. Both interest and principal are discounted to present value at the market rate of interest for securities of similar risk and maturity. When the stated rate and the market rate are the same, the bonds will sell at face value, $75 million in this instance. Brief Exercise 14-4 Interest $ 2,500,000 ¥ x 27.35548 * = $ 68,388,700 Principal $100,000,000 x 0.45289 ** = 45,289,000 Present value (price) of the bonds $113,677,700 14-1 Chapter 14 Bonds and Long-Term Notes Chapter 14 - Bonds and Long-Term Notes ¥ [5÷2] % x $100,000,000 * present value of an ordinary annuity of $1: n=40, i=2%. (Table 4) ** present value of $1: n=40, i=2%. (Table 2) 14-2 Chapter 14 - Bonds and Long-Term Notes Brief Exercise 14-5 Interest will be the effective rate times the outstanding balance: 4% x $82,218,585 = $3,288,743 Brief Exercise 14-6 Interest will be the effective rate times the outstanding balance: June 30 Interest expense (2% x $69,033,776)................................ 1,380,676 Discount on bonds payable (difference)................. 180,676 Cash (1.5% x $80,000,000)....................................... 1,200,000 December 31 Interest expense (2% x [$69,033,776 + 180,676]).......... 1,384,289 Discount on bonds payable (difference)................. 184,289 Cash (1.5% x $80,000,000)....................................... 1,200,000 Interest expense for the year: $1,380,676 + 1,384,289 = $2,764,965 Brief Exercise 14-7 Interest will be a plug figure: $80,000,000 – 69,033,776 = $10,966,224 discount $10,966,224 / 40 semiannual periods = $274,156 reduction each period June 30 Interest expense (to balance)............................................. 1,474,156 Discount on bonds payable (difference)................. 274,156 Cash (1.5% x $80,000,000)....................................... 1,200,000 December 31 14-3 Chapter 14 - Bonds and Long-Term Notes Interest expense (to balance)............................................. 1,474,156 Discount on bonds payable (difference)................. 274,156 Cash (1.5% x $80,000,000)....................................... 1,200,000 Interest expense for the year: $1,474,156 + 1,474,156 = $2,948,312 14-4 Chapter 14 - Bonds and Long-Term Notes Brief Exercise 14-8 Interest will be the effective rate times the outstanding balance: June 30 Cash (1.5% x $80,000,000)...........................................Cash (1....
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This note was uploaded on 03/29/2011 for the course ACC 311 taught by Professor Debruine during the Winter '08 term at Grand Valley State.

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Copy of Chap014solutions2011 - Chapter 14 Bonds and...

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