Fall 2013_Acc 3100_Ch 14

# Interest is payable semiannually on june 30 and

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

## 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.

Ask a homework question - tutors are online