DOC PREVIEW
UMass Amherst ACCOUNTG 221 - Bonds yet again

This preview shows page 1 out of 2 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 2 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 2 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

Acct. 221 1st Edition Lecture 21Outline of Last Lecture 1. Bondsa. Effective Rateb. How to find issue price c. Interest paymentsOutline of Current Lecture 2. Bondsa. How to calculate issue price b. Selling bondsc. Amortization schedule Current Lecture Bonds Calculating issue price Need:- Face value- Market interest rate- Stated rate (cash interest)- Years Selling Bonds On May 1st, 2012, Clock Corp. sells $1,000,000 in bonds having a stated rate of 6% annually (bond rate). The bonds mature in 10 years, and interest is paid semiannually. The market rate is 8% annually. - 1,000,000 is the face value: What bondholders get at maturity- 6% is the stated rate: Interest yearly = Face Value * Stated Rate  1,000,000 * .06 = 60,000- Step 1: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. Discount or Premium? Discount because our stated rate is less than market rate - Step 2: Present Value & Face Value  Face Value * (.46319) = $463,000  .46319 = PV table of $1 at 8% for 10 years- Step 3: Find cash payment of interest First: Face Value * Stated Value  1,000,000 * .06 = 60,000 Second: Use PV table of Aunnity of $1 8% for 10 years = 6.7101 Third: 60,000*6.7101 = $403, 000 Fourth: Add Step 2 and 3 together- 403,000 + 463,000 = $866,000- Step 4: Record in t-accounts Debit Cash $870,000 Credit Bond Payable (Liability) $1,000,000 Debit Bond Discount (contra liability) $130,000 Amortization Schedule  Cash Payment: (interest)- Stated Rate * Face Value  Affects Balance Sheet Interest Expense:- Carrying Value * Market Value Affects income statement  Amortization of Discount:- Difference between interest expense and cash payment  Bond Carrying Value:- Issue Day = Amount received for bond- Following Year = carrying value from year before + bond discount


View Full Document
Download Bonds yet again
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Bonds yet again and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Bonds yet again 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?