Acct. 221 1st Edition Lecture 20Outline of Last Lecture 1. Bondsa. Bonds payableb. Future value c. Cash FlowsOutline of Current Lecture 2. Bondsa. Effective Rateb. How to find issue price c. Interest paymentsCurrent Lecture Bonds Stated Rates vs. Market Value Stated rate = bond rate Market value = effective rate To determine effective rate 1. Determine if sold at premium or discount 2. Find present value of principal of bond- Face value – (value from PV of $1 table) 3. Find present value of future cash flow, aka interest 4. Amortize the discount or premium to expense Interest Payments Present value of an ordinary annuity of $60,000 for 10 periods @ interest rate of 8%- 60,000 * (6.7101) =402,606 Present value of single amount of $1 mill, 10 years in the future at 8%These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- 1,000,000 * (.46319) = 463,190 Add together- 402,606 + 463,190 The bond was issued at $865,000 or at
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