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AC221-Exam+III+B-fall2007_Solut

# AC221-Exam+III+B-fall2007_Solut - Mid-Term Exam III(B...

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Mid-Term Exam III (B) Problem 1: Bonds (40 pts total) NO PARTIAL CREDIT GIVEN a. Calculate the cash proceeds from the issuance of the bond on January 1, 2004. (5 points) Coupon payment = 10,000*14%/2=700 PV of coupon payment = 700* PVA(6%,10) = 700*7.3601= 5,152. PV of principal payment = 10,000* PV(6%,10) = 10,000*0.5584 = 5,584. Price of the bond = 5,152+5,584=10,736. b. Was the bond issued at Par, Premium or Discount? ______ Premium _______ (2 points) c. Prepare the journal entry to record the issuance of the bonds. (6 points) Dr. Cr. Cash 10,736 Bonds Payable 10,000 Premium on B/P 736 (=10,736- 10,000) d. Fill in the following amortization table. (6 points) Period ending on: Cash interest payment Interest expense Amortization discount/ (premium) Unamortized discount/ (premium) Net Book Value of Bond January 1, 2004 (736) 10,736 June 30, 2004 700 644 (56) (680) 10,680 December 31, 2004 700 641 (59) (621) 10,621 e. Prepare the long-term liability section of James Bond Corporation balance sheet on December 31, 2004, assuming that the bonds are the only long-term liability for the company. (5 pts) Bonds Payable 10,000 + Premium on B/P 621 Net Book Value of B/P 10,621 f. On January 1, 2005, the market interest rate went up to 16% and at that time James Bond Corporation bought back its

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AC221-Exam+III+B-fall2007_Solut - Mid-Term Exam III(B...

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