Mgmt 200 Assignment Soln 3-28-11

Mgmt 200 Assignment Soln 3-28-11 - x Market Rate (2) (3)...

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Management 200 – Introductory Financial Accounting– Spring 2011 Krannert School of Management - Purdue University Solutions to class assignment for March 28, 2011 Exercise 9-12 Requirement 1 (1) Date (2) Cash Paid (3) Interest Expense (4) Increase in Carrying Value (5) Carrying Value Face Amount x Stated Rate Carrying Value x Market Rate (3) – (2) Prior Carrying Value + (4) 1/ 1 /12 $ 447,030 12/31/12 $ 30,000 $ 31,292 $ 1,292 448,322 12/31/13 30,000 31,383 1,383 449,705 Requirement 2 January 1, 2012 Cash 447,030 Bonds Payable 447,030 (To record the bond issue) December 31, 2012 Interest Expense 31,292 Bonds Payable (difference) 1,292 Cash ($500,000 x 6%) 30,000 (First annual interest payment) December 31, 2013 Interest Expense 31,383 Bonds Payable (difference) 1,383 Cash ($500,000 x 6%) 30,000 (Second annual interest payment)
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Exercise 9-15 Requirement 1 (1) Date (2) Cash Paid (3) Interest Expense (4) Decrease in Carrying Value (5) Carrying Value Face Amount x Stated Rate Carrying Value
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Unformatted text preview: x Market Rate (2) (3) Prior Carrying Value (4) 1/ 1 /12 $ 562,757 6/30/12 $ 15,000 $ 14,069 $ 931 561,826 12/31/12 15,000 14,046 954 560,872 6/30/13 15,000 14,022 978 559,894 12/31/13 15,000 13,997 1,003 558,891 6/30/14 15,000 13,972 1,028 557,863 12/31/14 15,000 13,947 1,053 556,810 Requirement 2 If the market rate increases to 7%, it will cost $450,748 to retire the bonds. Calculator Input Bond characteristics Key Amount 1. Face amount FV $500,000 2. Interest payment each period PMT $15,000 = $500,000 x 6% x year 3. Market interest rate each period I 3.5% = 7% / 2 semi-annual periods 4. Periods to maturity N 34 = 17 years x 2 periods each year Calculator Output Issue price PV $450,748 December 31, 2014 Bonds Payable 556,810 Gain on Early Extinguishment 106,062 Cash 450,748 (Entry to record early retirement)...
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Mgmt 200 Assignment Soln 3-28-11 - x Market Rate (2) (3)...

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