provided, then choose the one alternative that best completes the statement or a
ID: 2340048 • Letter: P
Question
provided, then choose the one alternative that best completes the statement or answers the question. (20 points each) WORKOUT MULTIPLE CHOICE. Work out the problem using the space and scratch paper Tyche Inc. issued September 30, 2028 interest each March 31 and September 30, beginning March 31, 2019. Tyche has a 4% bonds on October 1, 2018, The bonds have a maturity date of (10-year maturity) and a face value of $300 million. The bonds pay December 31 year end 1) Assume the market rate was 6% at the issue date. Using the tables attached to this exam, or using your calculator, determine the price of the bonds on the issue date (rounded to the nearest thousand). a) 162,360,000. b) $ 274,408,000 c) 255,369,000. d) $ 211,678,000 Now, assume the market rate was 5% and the price of the bonds on the issue date was $276,616,000 (in other words, start with this number for this question), and that Tyche uses the effective interest method of accounting for the bond. What total interest expense would Tyche recognize for 2018? (Hint: Recording the year-end adjusting entry will help.) 2) a) 3,457,700 b) 6,915,400 c) 5,532,320 d) $ 3,750,000.Explanation / Answer
Solution 1:
Hence option c is correct.
Solution 2:
Interest expense for 2018 = $276,616,000 * 5%*3/12 = $3,457,700
Hence option a is correct.
Solution 3:
Total interest expense = cash interest from October to December + Discount amortized
= ($300,000,000*4%*3/12) + ($300,000,000 - $276,616,000)/10*3/12
= $3,584,600
Hence option d is correct.
Solution 4:
Carrying value of bond on March 31, 2019 = Bond issue price + Discount amortized
= $276,616,000 + ($300,000,000 - $276,616,000)/10*6/12 = $277,785,200
Hence option b is correct.
Computation of bond price Table values are based on: n= 20 i= 3% Cash flow Table Value Amount Present Value Par (Maturity) Value 0.55368 $300,000,000 $166,104,000 Interest (Annuity) 14.87750 $6,000,000 $89,265,000 Issue Price of bonds $255,369,000Related Questions
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