FA08HW4Key - 9-53 (25-40 min.) 1. Proceeds equal the...

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Chapter 9 Liabilities and Interest 1 9-53 (25-40 min.) 1. Proceeds equal the present values of interest and maturity payments at the market rate: Interest payment = 1/2 x 6% x $10,000,000 = $300,000 PV of interest payments, $300,000 x 8.1109* $2,433,270 PV of maturity payment, $10,000,000 x .6756* 6,756,000 Proceeds $9,189,270 * From Tables 9A-3 and 9-A2, respectively, 4% column, 10-period row Using a computer to avoid rounding errors, the present value is PV of interest payments $2,433,268.73 PV of maturity payment 6,755,641.69 Proceeds $9,188,910.42 For the remainder of this problem we will use the numbers derived from the tables. If you used the more precise calculation, your numbers will be just slightly different. 2. First semi-annual interest expense, 4% x $9,189,270 $367,571 Semi-annual interest payment 300,000 Amortization of bond discount $ 67,571 Analysis of Bond Transactions A = L + SE Cash = Bonds Payable Discount on Bonds Payable Retained Earnings a. Issuance +9,189,270 = +10,000,000 810,730 b. First semi-annual interest – 300,000 = + 67,571 367,571 Expense Interest Increase c. Maturity value –10,000,000 = –10,000,000 Bond related totals* 3,810,730 0 3,810,730 * Bond totals include 10 semi-annual payments of $300,000 plus repayment of $810,730 in excess of the original borrowing.
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2 9-53 (continued) 3. a. Cash 9,189,270 Discount on bonds payable 810,730 Bonds payable 10,000,000 To record proceeds upon issuance of 6% bonds maturing on January 1, 2009. b. Interest expense 367,571 Discount on bonds payable 67,571 Cash 300,000 To record amortization of discount and payment of interest. c.
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FA08HW4Key - 9-53 (25-40 min.) 1. Proceeds equal the...

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