13(a) Flashcards
Foxtrot Co. issued$100,00 of 10-yr bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the face value by the table value for
20 periods and 4% from the present value of 1 table
Feller Company issues $20,000,000 of 10-yr, 9%, bonds on March 1, 2024 at 97 plus accrued interest. The bonds are dated January 1, 2024, and pay interest on June 30 and December 31. What amount of cash is received on the issue date?
$19,700,000 **(issue * par) + (issue * % * (month’s missed/12))
= (20,000,0000.97) + (20,000,0000.09*(2/12))
A company issues $25,000,000, 7.8%, 20-yr bonds to yield 8% on January 1, 2024. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,201. If the effective-interest method of amortization is used, what amount of interest expense will be recognized in 2024?
$1,960,624
On January 1, 2024, Ellison Co. issued 8-yr bonds with a face value on 6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
PV of 1 (8,6%): 0.62741
PV of 1 (8,8%): 0.54027
PV of 1 (16,3%): 0.62317
PV of 1 (16,4%): 0.53391
PVoA (8,6%): 6.20979
PVoA (8,8%): 5.74664
PVoA (16,3%): 12.56110
PVoA (16,4%): 11.65230
PV of the principal is
$3,203,460 (6,000,000*0.53391)
If bonds are issued at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be
Greater than if the straight-line method were used
A company issues $25,000,000, 7.8%, 20-yr bonds to yield 8% on January 1, 2024. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,201. If the effective-interest method of amortization is used, what carrying value of the bonds will be reported on December 31, 2024 balance sheet?
$24,515,825
Cash payment per period = 25,000,0000.0786/12 = 975,000
June 30:
Interest expense = 24,505,2010.086/12 = 980,208.04
Discount amortized = 980,208.04 - 975,000 = 5,208.04
June 30 new carry value = 24,505,201 + 5,208.04 = 24,510,409.04
December 31:
Interest expense = 24,510,409.040.086/12 = 980,416.36
Discount amortized = 980,416.36 - 975,000 = 5,416.36
carry value = 980,416.36 + 5,208.04 = $24,515,825
At the beginning of 2024, Winston Corporation issued 10% bonds with a face value of $4,000,000. These bonds mature in 5 years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $3,705,578 to yield 12%. Winston uses a calendar year reporting period. If the effective-interest method or amortization is used, what amount of interest expense should be reported for 2024? (Round answer to nearest dollar.)
$446,010
A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2024. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,120. If the effective-interest method of amortization is used, what amount of interest expense will be recognized in 2024?
$1,176,375
If the bonds were issued at a premium, this indicates that
The nominal rate of interest exceeds the market rate
On January 1, Patterson Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of
$285,500
On October 1, 2024 Bartley Corporation issued 5%, 10-yr bonds with a face value of $8,000,000 at 104. Interest is paid on October 1 and April 1, with any premium or discount amortized on a straight-line basis. The entry to record the issuance of the bonds would include a ______ of $320,000 to ___________ on Bonds payable.
Credit; premium
On January 1, 2024, Ellison Co. issued 8-yr bonds with a face value on 6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
PV of 1 (8,6%): 0.62741
PV of 1 (8,8%): 0.54027
PV of 1 (16,3%): 0.62317
PV of 1 (16,4%): 0.53391
PVoA (8,6%): 6.20979
PVoA (8,8%): 5.74664
PVoA (16,3%): 12.56110
PVoA (16,4%): 11.65230
The issue price of the bonds is
$5,301,874
Interest COST: 6,000,0000.066/12 = 180,000
Issue price:
(6,000,0000.53391) + (180,00011.65230) = 5,300,874
**not sure why the answer was 1,000 above but I assumed a typo
A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2024. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,120. If the effective-interest method of amortization is used, what carding value with be reported for the bonds on December 31, 2024 balance sheet?
$14,709,495
When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be
Increased by accrued interest from May 1 to June 1
Under the effective-interest method of bond discount or premium amortization, the period interest expense is equal to
The market rate multiplied by the beginning-of-period carrying amount of the bonds.
