The notes to the Helpful Ltd. financial statements reported the following data o

Question

The notes to the Helpful Ltd. financial statements reported the following data on December 31, Year 1 (end of the fiscal year):
Bonds Payable 3% due on December 31, Year 8 ... $5,000,000 Less Discount ... ? Notes Payable 7% payable in $50,000 annual installments starting in year 5 ... $300,000 Ltd. amortizes bond discount by the effective-interest method and pays all interest amounts at December 31. Assume the market interest rate on January 1 of year 1, the date of issuance of the bonds, is 7%. Answer the following questions about Helpful Ltd.'s long-term liabilities: a. Using the PV function in Excel, what is the issue price of the bonds? b. What is the maturity value of the 7% bonds? c. What is Helpful Ltd's annual cash interest payment on the 7% bonds? d.What is the carrying amount of the 7% bonds at December 31st, year 1? Prepare an amoritzation table through December 31, Year 4 for the 7% (round all amounts to the nearest dollar) How much is Helpful Ltd's the year ended December 31, year 4? Begin by preparing the amoritization table through December 31st Year 4 for the 7% bonds

TABLE MUST CONTAIN: Interest Payment, Interest Expense,Discount Amortzation, Discount Account Balance, Bond Carrying Amount

How much is Hepful ltd's interest expenses on the 7% bonds for the year ended December 31, Year 4?

Explanation / Answer

Answer 1(a) . Table Value Based on n= 8 Years i= 7% Cash Flow Amount Present Value Interest - $5,000,000 X 3%              150,000                              895,695 ($150,000 X 5.97130) Principal          5,000,000                           2,910,050 ($5,000,000 X 0.58201) Issue Price of Bonds                           3,805,745 Discount on issue of Bonds                           1,194,255 Answer 1(b) . Maturity Value of Bonds          5,000,000 Answer 1© Annual Cash Interest Payment - $5,000,000 X 3%              150,000 Answer 1 (d) Bonds Payable          5,000,000 Less: Discount on issue of bonds          1,077,853 Bond Payable - Year 1          3,922,147 Answer 3. Interest Expense - Year 4              292,598 Answer 2. Amortization Schedule A B C D E Annual Interest Period Interest Paid - $5,000,000 X 3% Interest Expense - Preceeding Bond Carrying Value X 7% Discount Amortization (B - A) Unamortized Discount (D - C) Bonds Carrying Amount ($5,000,000 - D) 0                              -                                          -                          -            1,194,255              3,805,745 1                   150,000                             266,402            116,402          1,077,853              3,922,147 2                   150,000                             274,550            124,550              953,303              4,046,697 3                   150,000                             283,269            133,269              820,034              4,179,966 4                   150,000                             292,598            142,598              677,436              4,322,564 5                   150,000                             302,579            152,579              524,857              4,475,143 6                   150,000                             313,260            163,260              361,597              4,638,403 7                   150,000                             324,688            174,688              186,908              4,813,092 8                   150,000                             336,908            186,908                         (0)              5,000,000

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