3. Poe, Inc. had the following bank reconciliation at March 31, year 2: Balance

Question

3. Poe, Inc. had the following bank reconciliation at March 31, year 2: Balance per bank statement, 3/31/Y2 $46,500

Add deposit in transit 10,300

56,800

Less outstanding checks 12,600

Balance per books, 3/31/Y2 44,200

Data per bank for the month of April year 2 follow:

Deposits $58,400

Disbursements 49,700

All reconciling items at March 31, year 2, cleared the bank in April. Outstanding checks at April 30, year 2, totaled $7,000. There were no deposits in transit at April 30, year 2. What is the cash balance per books at April 30, year 2?

4. Bob Smith borrowed $200,000 on January 1, 2015. The interest rate of 8% is compounded semiannually to be repaid January 1, 2025. To repay this Bob wants to start making five equal annual deposits into fund that earns 6% annum on January 1, 2020.

What is the amount of the five annual deposits that Bob needs to make?

5. Timken Company issues a $1,500,000 bond at 10% for 10 years. The market interest rate is 9%.

a) What is the issue price of these bonds and the bond discount or premium? Assume semi-annual interest payments.

b) Assume that Timken uses the effective interest method to amortize the bond discount or premium for the semiannual interest payments, what is the interest expense and the amount of cash paid on the first interest payment?

Explanation / Answer

3. Poe Inc. All Amounts in $ Bank Balance per Cash Book as on March 31 44200 Add : Deposits in bank 58400 Less : Disbursements -49700 52900 Add : Outstanding Checks as on April 30 7000 Revised Balance per Cash Book as on April 30 59900 4. Bob Smith borrowed $ 200,000 on January 1, 2015 Interest @ 8% compounded semiannually Loan to be repaid on January 1, 2025 Working of Repayment with interest till 2025 Year Semiannual Period Principal Interest Total 2015 1st six months 200000 8000 208000 2nd six months 208000 8320 216320 2016 1st six months 216320 8652.8 224973 2nd six months 224973 8998.9 233972 2017 1st six months 233972 9358.9 243331 2nd six months 243331 9733.2 253064 2018 1st six months 253064 10123 263186 2nd six months 263186 10527 273714 2019 1st six months 273714 10949 284662 2nd six months 284662 11386 296049 2020 1st six months 296049 11842 307891 2nd six months 307891 12316 320206 2021 1st six months 320206 12808 333015 2nd six months 333015 13321 346335 2022 1st six months 346335 13853 360189 2nd six months 360189 14408 374596 2023 1st six months 374596 14984 389580 2nd six months 389580 15583 405163 2024 1st six months 405163 16207 421370 2nd six months 421370 16855 438225 Hence at the end of the period, $ 438,225 needs to be repaid. He wishes to make 5 annual deposits from January 1, 2020 till December 31, 2024 earning interest @ 6% per annum to repay this amount Assuming the annual deposit as X 5X + 5X * 6% * 5 = $ 438,225 Thus, 5X + 1.5X = $ 438,225 Therefore, 6.5X = 438,225 or X = $ 438,225 / 6.5 = 67419 $ 5. Timken Company a) On the basis of the information given, the price of the bond works out to $ 1,597,559.52. The bond premium on the issue will be $ 1,597,559.52 - $ 1,500,000 = $ 97,559.52. b) The interest expense for the first six months will be $ 1,500,000 X 10% X 6/12 = 75000 The amount of cash paid on the first interest payment will be ($ 97,559.52 / 2) - $ 75,000 = 48779.76 -75000 = 26220 $

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