Fall 2013_Acc 3100_Ch 14

Interest is payable semiannually on june 30 and

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Unformatted text preview: ayable semiannually on June 30 and December 31. The bonds mature in three years. The market yield for bonds of similar risk and maturity is 14%. The entire bond issue was purchased by United Intergroup. Present value of an ordinary annuity of $1: n=6, i=7% Calculation of the Price of the Bonds Interest Principal $ 42,000 × 4.76654 = $700000 × 0.66634 = Present value (price) of bonds Present Values $ 200,195 466,438 $ 666,633 present value of $1: n=6, i=7% Because interest is paid semiannually, the present value calculations use: (a) the semiannual stated rate (6%), (b) the semiannual market rate (7%), and (c) 6 (3 x 2) semi-annual periods. 14-5 Bonds Issued at a Discount Masterwear (Issuer) Cash Discount on bonds payable Bonds payable United (Investor) Investment in bonds Discount on bond investment Cash 666,633 33,367 700,000 700,000 33,367 666,633 Determining Interest – Effective Interest Method 14-6 Interest accrues on an outstanding debt at a constant percentage of the debt each period. Interest...
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This note was uploaded on 11/19/2013 for the course ACCOUNTING 3100 taught by Professor He during the Fall '10 term at CUNY Baruch.

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