ezto.mheducation.com Chapter 14 HW COUNTING 01 Fall 2017 Chapter 14 HW Question

Question

ezto.mheducation.com Chapter 14 HW COUNTING 01 Fall 2017 Chapter 14 HW Question 21 (of 21) 21. 10.00 points When Patey Pontoons issued 4% bonds on January 1, 2016, with a tace amount of S740000, the market yeld for bonds of similar risk and maturity was 5% The bonds mature December 31, 2019 (4 years). Interust is paid sermannually on June 30and December 31 Eyof $1. PyofS1. EVAofSL PVA ost FVAD of $1 and PVAD of $1) (Use appropriate factor's) from the tables provided.) 1. Determine the price of the bonds at January 1, 2016 Price of bonds Prepare the journal entry to record their issuance by Patey on January 1, 2016t no entry is required for a transactionlevent, select "No journal entry required" in the first account field) 2. HBBAEBGBL tab

Explanation / Answer

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5. Balance sheet amount= 719620

6. Income statement amount= 35750

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Interest amount: Principle 740,000 Rate of interest 4% Frequency of payment(in months) 6 Interest amount 740000*0.04*6/12= 14800 Present value calculation: yield to maturity 5% Effective interest per period(i) 0.05*6/12= 0.025 Number of interest payments: (n) Years to redemption 4 Interest payments per year 2 Total interest payments(n) 8 Cash flow Discount factor Discounted cash flow Interest payments-Annuity (2.5%,8 periods) 14,800 7.1701 106,118 Principle payments -Present value (2.5%,8 periods) 740,000 0.8207 607,352 Bond price 713,470 Face value 740,000 Premium/(Discount) -26,530

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