49. Chee purchases Tan, Inc. bonds for $108,000 on January 2, 2011. The face val
ID: 2388134 • Letter: 4
Question
49. Chee purchases Tan, Inc. bonds for $108,000 on January 2, 2011. The face value of the bonds is $100,000, the maturity date is December 31, 2015, and the annual interest rate is 6%. Chee will amortize the premium only if he is required to do so. Chee sells the bonds on July 1, 2013, for for $106,000.a. Determine the interest income Chee should report for 2011.
b. Calculate Chee’s recognized gain or loss on the sale of the bonds in 2013.Calculate Chee’s recognized gain or loss on the sale of the bonds in 2013.
Explanation / Answer
a. Determine the interest income Chee should report for 2011. Chee hold the bond in 2011 for 364 days. Face value is $100,000 & ANnual coupon is 6% SO Int income for 2011 = $100,000*6%*364/365 = $5,983.56 b. Calculate Chee’s recognized gain or loss on the sale of the bonds in 2013. FV = $100000, Coupon = 6%. So PMT = 6%*$100,000 = $6000, Life = nper = 5yrs Current price in 2011 PV = $108,000 So YTM = Rate(nper,PMT,PV,FV) = Rate(5,6000,-108000,100000) = 4.19% Remaining nper in Jul 2013 = 2.5, Rate=4.19%, FV=100,000, PMT=6000 So Current price =PV(Rate,nper,PMT,FV) = PV(4.19%,2.5,6000,100000) = $104,213 So on 1 Jul 2013, Current price is $104,213 while Sale price is $106,000 So Gain = 106,000- $104,213 = $1,787
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