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Unformatted text preview: $8,000 .8573 (from Table 4 in Appendix A)
Discount on notes payable $ $ Cash (+A)
Discount on Notes Payable (–L) 8,000.00 6,858.40
1,141.60
6,858.40
1,141.60 Notes Payable (+L)
8,000.00
Issued notes payable.
Interest Expense (E, –SE) 548.67
Discount on Notes Payable (+L) 548.67
Incurred interest.
Interest Expense (E, –SE) 592.93
Discount on Notes Payable (+L) 592.93
Incurred interest. E11–6 Concluded Notes Payable (–L) 8,000.00
Cash (–A) 8,000.00
Repaid notes payable.
c. Stated interest rate = 6%
Face value
Present value (i = 8%, n = 2)
Present value of face value
$8,000 .8573 (from Table 4 in Appendix A)
$6,858.40
Present value of interest payments
($8,000 6%) 1.7833 (from Table 5 in Appendix A)
855.98
Total present value
7,714.38
Discount on notes payable
285.62
Cash (+A)
Discount on Notes Payable (–L) $8,000.00 $ 7,714.38
285.62
Notes Payable (+L) 8,000.00
Issued notes payable.
Interest Expense (E, –SE) 617.15a
Discount on Notes Payable (+L) 137.15b
Cash (–A)
480.00c
Incurred and paid interest.
a $617.15 = Book Value Effective Interest Rate = 7,714.38 8%
b $137.15 = Interest Expense – Interest Payment
c $480.00 = Face Value Stated Interest Rate = $8,000 6% Interest expense (E, –SE) 628.47a
Discount on Notes Payable (+L) 148.47b
Cash (–A)
480.00
Incurred and paid interest.
a $628.47 = Book Value Effective Interest Rate = (7,714.38 + 137.15) 8%
b $148.47 = $8,000.00 – [$7,714.38 + $137.15 (from prior entry)] Notes Payable (–L) 8,000
Cash (–A) Repaid notes payable. 8,000 E11–7
a. Present value = Present value of face value + Present value of periodic interest payments
(1 )
Discount rate = 8%
Present value of face value (i = 8%, n = 2)
($2,500 0.85734 from Table 4 in Appendix A)
Present value of periodic interest payments (i = 8%, n = 2)
($200 1.78326 from Table 5 in Appendix A)
Total present value
(2 )
Discount rate = 10%
Present value of face value (i = 10%, n = 2)
($2,500 0.82645 from Table 4 in Appendix A)
Present value of periodic interest payments (i = 10%, n = 2)
($200 1.73554 from Table 5 in Appendix A)
Total present value
(3 )
Discount rate = 12%
Present value of face value (i = 12%, n = 2...
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 Fall '08
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 Accounting

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