When the bonds mature at the end of Year 4, what amount of principal will Olive
ID: 2582115 • Letter: W
Question
When the bonds mature at the end of Year 4, what amount of principal will Olive pay investors?
How much cash was received on the day the bonds were issued (sold)?
Were the bonds issued at a premium or a discount? If so, what was the amount of the premium or discount?
How much cash will be disbursed for interest each period and in total over the life of the bonds?
What is the coupon rate?
What was the annual market rate of interest on the date the bonds were issued?
What amount of interest expense will be reported on the income statement for Year 2 and Year 3?
What amount will be reported on the balance sheet at the end of Year 2 and Year 3?
Required: 1. Complete the amortization schedule. (Enter all your values in positive. Round your final answers to nearest whole dollar amount.) Date Interest Amortization Balance January 1, Year 1 End of Year 1 End of Year 2 End of Year 3 End of Year 4 1,650 $ 1,650 s 1,650 s 1,650 $ 1,527 $ 1,520 s 1,514 $ 1,507 $ $30,532 123 $ 30,409 130 30,279 30,143 30,000 143 $Explanation / Answer
DATE CASH INTEREST AMORTISATION BALANCE JAN1, 1ST YEAR 30,532 END 1ST YEAR 1,650 1,527 123 30,409 END 2ND YEAR 1,650 1,520 130 30,279 END 3RD YEAR 1,650 1,514 136 30,143 END 4TH YEAR 1,650 1,507 143 30,000 1) When the bond matured at the end of the 4th year the maturty value is value value of the bond i.e. $30000 2) Here Company is paying the interest of 5.5% but the market rate is 5% as pe given table. So, bond should be issued at a premium. Therefore company receiving $30,532 at the time of issue. 3) Bond issued at a premimum of $ 532 4) Coupon Rate is 1650/30000 = 5.5% 5) Annual market interest rate is 1527/30532 = 5% 6) In the income statement $1,520 and $ 1,514 has to be debit in the year 2 and year 3 respectively 7) In the balance sheet $130 and $ 136 has to be reporting in the year 2 and year 3 respectively
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