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AFM 101 Classroom Solutions - Nov 14th Part B_1

# AFM 101 Classroom Solutions - Nov 14th Part B_1 - E1115...

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E11–15 Principal: \$1,000,000 x p n=3;i=9% (Table A.1; 0.7722) ................ \$ 772,200 Interest: (\$1,000,000 x 10%) x P n=3;i=9% (Table A.2; 2.5313) .... 253,130 Issue (sale) price ....................................................................... \$1,025,330 Req. 1 — Effective-interest amortization: Bond Payment Schedule Date Cash Payme nt Interes t Expens e Amorti zation of Premiu m Net Liability 1/1/2010 \$1,025,330 12/31/2010 \$ 100,000 \$1,025,330 x 9% = \$92,280 \$7,720 1,017,610 12/31/2011 100,000 1,017,610x 9% = 91,585 8,415 1,009,195 12/31/2012 100,000 1,009,195x 9% = 90,827 3 9,195* 1,000,000 *This amount should be \$9,173. It was adjusted upward by \$22 because of rounding errors. This ensures that the net liability equals the face value of the bonds at maturity. Req. 2 2010 2011 2012 Item disclosed and related statement Interest expense (on the income statement) \$ 92,280 \$ 91,585 \$ 90,827 Bonds payable (on the statement of financial position) 1,017,610 1,009,195 0 Interest payment (on the statement of cash flows) 100,000 100,000 100,000 Issuance of bonds (statement of cash flows) 1,025,330 Payment of bonds (statement of cash flows) 1,000,000

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Thompson Corporation Thompson Corporation is planning to issue \$100,000, five-year, 8-percent bonds. Interest is payable semi-annually each June 30 and December 31. All of the bonds will be sold on July 1, 2011; they mature on June 30, 2016. Issue \$100,000 Price \$4,000 \$4,000 \$4,000 \$4,000 \$4,000 \$4,000 \$4,000 \$4,000 \$4,000 \$4,000
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AFM 101 Classroom Solutions - Nov 14th Part B_1 - E1115...

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