QUESTION 3 Not complete Marked out of 26.00 Flag question Analyzing and Reportin
ID: 2330597 • Letter: Q
Question
QUESTION 3 Not complete Marked out of 26.00 Flag question Analyzing and Reporting Financial Statement Effects of Bond Transactions on January 1, 2017, Arbor Corporation issued $800,000 of 20-year, 11% bonds for $739,815, yielding a market (yield) rate of 1 2%. Interest is payable semiannually on June 30 and December 31. (a) Confirm the bond issue price. Use Excel or a financial calculator for your computations. Round answers to the nearest whole number. Present value of principal repayment Present value of interest payments Selling price of bonds $739,815 (b) Indicate the financial statement effects using the template for (1) bond issuance, (2) semiannual interest payment and discount amortization on June 30, 2017, and (3) semiannual interest payment and discount amortization on December 31, 2017. Round answers to the nearest whole number. Use negative signs with answers, when appropriate Balance Sheet Noncash Contributed Earnec Transaction Cash Asset Assets Liabilities CapitalCapitaExplanation / Answer
Answer
Bonds issue price is calculated by ADDING the:
Discounted face value of bonds payable at market rate of interest, and
Discounted Interest payments amount (during the lifetime) at market rate of interest.
Bond Face Value
Market Interest rate (applicable for period/term)
PV of
$ 800,000.00
at
6.0%
Interest rate for
40
term payments
PV of $1
0.097222188
PV of
$ 800,000.00
=
$ 800,000.00
x
0.097222188
=
$ 77,777.75
A
Interest payable per term
at
5.5%
on
$ 800,000.00
Interest payable per term
$ 44,000.00
PVAF of 1$
for
6.0%
Interest rate for
40
term payments
PVAF of 1$
15.04629687
PV of Interest payments
=
$ 44,000.00
x
15.04629687
=
$ 662,037.06
B
Bond Value (A+B)
$ 739,815.00
Answer: Based on Above:
>Present Value of Principal Payment = $ 77,778
> Present Value of Interest payments = $ 662,037
>Selling price of bonds = 77778 + 662037 = $ 739,815 [Confirmed]
Working
Period
Cash payment
Interest expense
Discount on Bonds payable
Carrying Value of Bond
Issued
$ 739,815
1st interest
$ 44,000
$ 44,389
$ 389
$ 740,204
2nd Interest
$ 44,000
$ 44,412
$ 412
$ 740,616
Answer
Transaction
Cash Asset
Non Cash Asset
Liabilities
Contributed Capital
Earned Capital
Revenue
Expenses
Net Income
1
$ 739,815
$ 739,815
2
$ (44,000)
$ 389
$ 44,389
$ (44,389)
3
$ (44,000)
$ 412
$ 44,412
$ (44,412)
Bonds issue price is calculated by ADDING the:
Discounted face value of bonds payable at market rate of interest, and
Discounted Interest payments amount (during the lifetime) at market rate of interest.
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