136B Notes 2_3_11

136B Notes 2_3_11 - 2/3/11: 136B Notes Premium Example...

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Unformatted text preview: 2/3/11: 136B Notes Premium Example *Bonds issues 12/31/07 with a face value of $100,000 *Principal due 12/31/10 *Interest payable annually, beginning 12/31/08, at a stated rate of 7% *Effective Interest Rate was 6% *On 3/31/09, $60,000 face value of bonds were reaquired at 101, plus accrued interest 12/31/07: PV of Principal: PV of Interest: $100,000 x .83962 = (7% x $100,000) x PVOA n=3;6% 7,000 x 2.67301 J/E- 12/31/07: Cash $ $83,962 $18,711 $102,673 102,673 BP Premiums $ 100,000 $ 2,673 Amortization Schedule: <6%> Date Eff. Int. Rate 12/31/07 12/31/08 (6%*$102,673) $ 6,160 12/31/09 $ 6,110 12/31/10 $ 6,057 - <7%> Stated Int. $ $ $ 7,000 7,000 7,000 $ $ J/E for 12/31/08: Interest Exp. Premium = Prem. Amor. - 6,160 840 Cash $ $ $ $ J/E for 3/31/09: Interst Exp. Premum 840 890 943 <FV+Unam. Prem> CV of BP $102,673 $ $ $ 101,833 100,943 100,000 7,000 917 133 [$6,110*(3/12)x60%]= $917 [$890*(3/12)*60%] = $133 [$7,000*(3/12)*60%] = $1,050 Cash ^^^Interest Entry… now for the reacquisition entry… 3/31/09: Reacquisition Price CV of bonds reacq: Total CV @ 12/31/08: Prem Am. 12/31/08-3/31/09: Total CV @ 3/31/09: % of bonds reacquired CV of bonds reacq: $ $ 101,833 $ (222) $ 101,611 60% ((Continued below)) 60,600 [$60,000x101%]=$60,600 [$890*(3/12)] $ $ 60,967 367 GAIN J/E @ 3/31/09: B/P Premium ** $ $ 60,000 967 Cash $ Gain $ -------------------------------------Original Total Premium $ 2,673 Less: 2008 Amortization $ (840) Total Premium, 12/31/08 $ 1,833 % of bonds reacquired 60% Prm on bonds reac, 12/31/08 $ 1,100 Amor., 12/31/08-3/31/09 $ (133) Unam. Premium, 3/31/09 $ 967 60,600 367 Bond issue costs: *Bond issue costs… fees that are critical to actually issuing the bonds *Related legal and accounting fees, printing costs, etc. *These are required to be reported as "deferred charge" (which is an asset… like a prepaid exp) >Youre incurring these costs upfront to get this bond financing, but youre getting the benefit of these over the length of the life of the bonds. *…And then Amortize to Expense over the bond term, pretty much always straightline (just like you would amortize a prepaid expense) Exercise 14-12 (Handout): Reacquisition Prce Net CV of bonds reacq (1/2/07) Face Value Less: Unam discount Unam bond issue costs $ 909,000 [101% x 900,000] $ 900,000 $ (13,500) $ (7,200) Calculations: 1) Orig. disc., 1/2/02 (3%*$900,000) ^100%-97% Amort., 1/2/02-1/2/07 *[($27,000/10yrs)*5yrs] Unamortized Disc, 1/2/07 2) Original issue costs, 1/2/02 *must pro-rate! *[$24,000*(900,000/1,500,000)] Amort., 1/2/07 *[($14,400/10)*5] J/E- 1/2/07: Bonds Payable $ 900,000 Loss $ 29,700 Discount Issue Costs Cash $ $ $ 13,500 7,200 909,000 $ 27,000 $ $ (13,500) 13,500 $ 14,400 $ $ (7,200) 7,200 Long Term Notes Payable *Notes issued for property, goods, or services *Stated rate ona N/P os assumed to be fair UNLESS: 1) No rate is stated, or 2) Stated rate appears unreasonable, or 3) The FV of what was received (property, goods, services, etc.) is materially different from the face amount of the note If the stated rate on N/P is unfair: 1) Recored what was received at its FMV; the PV of the note is measured based on this FMV EX: N/P of $100,000 with a stated interest rate of 3% is issued for land with a FMV of $95,000 Acquisition J/E: Land 95,000 Disc. (plug) 5,000 N/P 100,000 ORRRRR… 2) If FMV is unknown, impute an interest rate. Record what was rec'd at PV of the payments, using the imputed rate EX: A non interest bearing $100,000 note payable ...
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This note was uploaded on 02/22/2012 for the course ACCT 1320 taught by Professor Staff during the Spring '11 term at Texas State.

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