James Corporation is planning to issue 500 000 worth of bonds that mature in 10 years and pay 6 percent interest each June 30 and December 31 All of the bonds will be sold on January 1 2014 Semi annual interest rate 2 periods X 2 per year Case A Market yield rate 4 percent 500 000x 06x1 2 15 000 PV i 2 n 20 6730 PVA i 2 n 20 16 3514 Single payment 500 000 x 6730 336500 Annuity 15 000 x 16 3514 245721 581771 Case C Market yield rate 8 5 percent 500 000 x 06 x 1 2 15 000 PV i 4 25 n 20 4350 PVA i 4 25 n 20 13 2944 Single payment 500 000 x 4350 217500 Annuity 15 000 x 7 3601 199416 416916 750000x 08 60 000 PV i 09 n 10 4224 PVA i 09 n 10 6 4177 750 000 x 4224 316800 60 000 x 6 4177 385062 701862 Cost RV Useful life 600000x 075x1 2 22500 PV i 4 25 n 8 7168 PVA i 4 25 n 8 6 6638 600000 x 7168 430 080 22500 x 6 6638 149 935 5 On January 1 2014 Clearwater Corporation sold a 750 000 8 percent bond issue 9 percent market rate The bonds were dated January 1 2014 pay interest each December 31 and mature in 10 years On January 1 2014 Park Corporation sold a 600 000 7 5 percent bond issue 8 5 percent market rate The bonds were dated January 1 2014 pay interest each June 30 and December 31 and mature in four years On January 1 2014 Frog Corporation sold a 2 000 000 10 percent bond issue 8 5 percent market rate The bonds were dated January 1 2014 pay interest each June 30 and December 31 and mature in 10 years 580 015 5 Interest expense bond price x market price 580 015 5 x 085x1 2 24651 Cash payment face value x stated rate 600000 x 075 x 22500 2 000 000 x 10 x 100 000 PV i 4 25 n 20 4350 PVA i 4 25 n 20 13 2944 2 000 000 x 435 870 000 100 000 x 13 2944 1 329 440 2 199 440 Interest expense bond price x market price 2 199 440 x 085 x 93476 Cash payment face value x stated rate 2 000 000 x 01 x 100 000 Houston Company issued a 10 000 three year 5 percent bond on January 1 2014 The bond interest is paid each December 31 The bond was sold to yield 4 percent Complete a bond amortization schedule Use the effective interest method Principle Face amount PV i 4 n 3 10 000 x 8889 8889 Interest 10 000 x 05 500 500 x 2 7751 1388 10277 Cash interest 500 Interest expense net book value x market price 10277 x 04 411 08 Amortization Cash interest Interest expense 500 411 89 Book value of bond Book value at beginning of period Amortization 10277 89 10189 On January 1 2014 TCU Utilities issued 1 000 000 in bonds that mature in 10 years The bonds have a stated interest rate of 10 percent and pay interest on June 30 and December 31 each year When the bonds were sold the market rate of interest was 12 percent The company uses the effective interest amortization method 1 000 000 x 10 x 50 0000 PV i 6 n 20 3118 1 000 000 311 800 PVA i 6 n 20 11 4699 50 000 573 495 885 295 Interest expense net book value x market price 885 295 x 12 x 1 2 53 118 Cash payment face value x stated rate 1 000 000 x 10 x 50 00 Amortization cash interest expense 50 000 53118 3 118 Book value Net book value amortization 885295 3118 888 413 888 413 x 12 x 1 2 53305 888 413 3305 891718 On January 1 2014 Cron Corporation issued 700 000 in bonds that mature in five years The bonds have a stated interest rate of 13 percent and pay interest on June 30 and December 31 each year When the bonds were sold the market rate of interest was 12 percent The company uses the effective interest amortization method 700 000 x 13 x 45 500 PV I 6 n 10 5584x700 000 390 880 PVA I 6 n 10 7 3601x45 500 334 885 725 765
View Full Document
Unlocking...