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Unformatted text preview: face value ($1,000 .75132) ($1,000 .82645) PV of interest payment ($60 2.48685) ($60 1.73554) Total present value present value 12/31/13 Present value (i = 10%, n = 1) PV of face value ($1,000 .90909) PV of interest payment ($60 .90909) Total present value $ $ 826.45 12/31/12 Present value (i = 10%, n = 2) PV of face value 751.32 PV of interest payment 149.21 104.13 $ $ 930.58 900.53 $ 909.09 $ Total 54.55 963.64 b. D a te Interest Expense Payment Amount Disc./Prem. Amortization Face Value Disc./Prem. Balance Book Value Note A 1/1/12 12/31/12 12/31/13 12/31/14 $66.42 64.40 62.26 $100.00 100.00 100.00 $33.58 35.60 37.74 $1,000.00 1,000.00 1,000.00 1,000.00 $106.90 73.32 37.71 ($0.00) $1,106.90 1,073.32 1,037.73 1,000.00 Note B 1/1/12 12/31/12 12/31/13 12/31/14 $100.00 100.00 100.00 $100.00 100.00 100.00 $0.00 0.00 0.00 $1,000.00 1,000.00 1,000.00 1,000.00 $0.00 0.00 0.00 0.00 $1,000.00 1,000.00 1,000.00 1,000.00 Note C 1/1/12 12/31/12 12/31/13 12/31/14 $90.05 93.06 96.36 $60.00 60.00 60.00 $30.05 33.06 36.37 $1,000.00 1,000.00 1,000.00 1,000.00 $99.48 69.43 36.37 ($0.00) $900.52 930.57 963.63 1,000.00 P11–9 Concluded c. Interest Expense D a te Payment Amount Disc./Prem. Amortizatio n Face Value Disc./Prem. Balance Book Value Note A 1/1/12 12/31/12 12/31/13 12/31/14 $100.00 100.00 100.00 $35.63 35.63 35.63 $1,000.00 1,000.00 1,000.00 1,000.00 $106.90 71.27 35.63 0.00 $1,106.90 1,071.27 1,035.63 1,000.00 Note B 1/1/12 12/31/12 12/31/13 12/31/14 $100.00 100.00 100.00 $100.00 100.00 100.00 $0.00 0.00 0.00 $1,000.00 1,000.00 1,000.00 1,000.00 $0.00 0.00 0.00 0.00 $1,000.00 1,000.00 1,000.00 1,000.00 Note C 1/1/12 12/31/12 12/31/13 12/31/14 d. $64.37 64.37 64.37 $26.84 26.84 26.84 $60.00 60.00 60.00 $33.16 33.16 33.16 $1,000.00 1,000.00 1,000.00 1,000.00 $99.48 66.32 33.16 ($0.00) $900.52 933.68 966.84 1,000.00 Compare parts (b) and (c) to part (a). The effective interest method maintains the net book value of the liability equal to the present value of the future cash flows of the liability throughou...
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