AC221 Special Problem Ch. 10

AC221 Special Problem Ch. 10 - -------------------Jun 30...

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SP10-1: BOND ACCOUNTING (HS) PART 1: James River Enterprises issued a bond on January 1, 1996, with a face (maturity) value of $1,000 and a coupon rate of 8% per year. The bond paid interest semiannually, and matured in three years. Prepare an amortization table in the format shown below using the effective interest method, under each of the following circumstances: a. The market rate on the date of issue was 8%. b. The market rate on the date of issue was 10%. c. The market rate on the date of issue was 6%. (a). Period ending on: Beginning net liability Interest expense Cash interest payment Discount/ (premium ) amortized Face value Unamortized discount (premium) Ending net liability January 1, 1996 ----------- --------- --------- ---------- Jun 30 1996 Dec 31 1996 Jun 30 1997 Dec 31 1997 June 30 1998 Dec 31 1998 (b). Period ending on: Beginning net liability Interest expense Cash interest payment Discount/ (premium ) amortized Face value Unamortized discount (premium) Ending net liability January 1, 1996 ----------- ---------
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Unformatted text preview: -------------------Jun 30 1996 Dec 31 1996 Jun 30 1997 Dec 31 1997 June 30 1998 Dec 31 1998 (c). Period ending on: Beginning net liability Interest expense Cash interest payment Discount/ (premium ) amortized Face value Unamortized discount (premium) Ending net liability January 1, 1996---------------------------------------Jun 30 1996 Dec 31 1996 Jun 30 1997 Dec 31 1997 June 30 1998 Dec 31 1998 Part II Suppose that on January 1, 1997, the market rate of interest went up to 12%, and at that time, James River Enterprises bought back its bond. Please answer (for each of the three above cases) what would be the price, which will be paid and what will be the gain (or loss) if any for James River Enterprises, from this transaction. a. The price for the bond repurchase is: , the resulting gain/loss is: b. The price for the bond repurchase is: , the resulting gain/loss is: c. The price for the bond repurchase is: , the resulting gain/loss is:...
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AC221 Special Problem Ch. 10 - -------------------Jun 30...

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