When calculating the issue price of these bonds why must you use six periods

# When calculating the issue price of these bonds why

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1. When calculating the issue price of these bonds, why must you use six periods? 2. How much cash will Mashni Company receive upon the issuance of the bonds? 3. Briefly indicate the effect of the bond issue price if the bonds paid interest semiannually instead of annually. Do not calculate. If the bonds paid interest semiannually, the issue price would decline, because the more often interest is compounded, the higher the cost for the debtor. Proof: PV of \$40,000 for N = 12 and I = 4% \$24,990 PVOA of \$1,200 for N = 12 and I = 4% 11,268 Total issue price \$36,258
Exercise 13-16 Bond Premium Amortization, Effecitve Interest Method On October 31, 2004, when the market rate of interest was 8 percent, the Moore Company issued \$80,000 of 6 percent, seven-year term bonds dated August 1, 2003, for \$72,604 plus accrued interest. The bonds pay annual interest on July 31. Required: 1. Prepare an effective interest amortization table for the bond issue. 10/31/04 \$72,604 07/31/05 \$4,800 \$5,808 \$1,008 73,612 07/31/06 4,800 5,889 1,089 74,701 07/31/07 4,800 5,976 1,176 75,877 07/31/08 4,800 6,070 1,270 77,147 07/31/09 4,800 6,172 1,372 78,519 07/31/10 4,800 6,282 1,482 80,000 *Rounded. 2. Calculate the bok value of the bonds to be reported in Moore's balance sheet at December 31, 2004 DESCRIPTION DEBIT CREDIT Interest Expense (\$5,808 × 5/12) 2,420 Discount on Bonds Payable (\$1,008 × 5/12) 420 Interest Payable (\$4,800 × 5/12) 2,000 entire period. Amounts on the amortization schedule are for 12 months, of which 7 months are in the following year. This requires 5 months to be amortized during 2004. Book value at 12/31/04: \$72,604 + \$420 = \$73,024 3. What is the nature of the balance in the Discount on Bonds account?

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• Fall '09
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• 1966, 1973, 1970, 1965

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