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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
Principal $ 42,000 × 4.76654 =
$700000 × 0.66634 = Present value (price) of bonds Present Values
$ 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
Discount on bonds payable
Investment in bonds
Discount on bond investment
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.
- Fall '10