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Chapter 12: Q14SE (page 658)

Determining the present value of bond at issuance

On December 31, 2018, when the market interest rate is 12%, Benson Realty issues

$600,000 of 9.25%, 10-year bonds payable. The bonds pay interest semi annually.

Determine the present value of the bonds at issuance.

Short Answer

Expert verified

The present value of the bond as issuance is $505,493

Step by step solution

01

Definition of cash flow

The cash flow the inflow and outflow of the cash and other items which are equivalent to the cash during a period.

02

Present value of the bonds at issuance

Present value of principal:

笔谤别蝉别苍迟鈥塚补濒耻别=鈥塅耻迟耻谤别鈥塚补濒耻别脳鈥塒痴鈥塮补肠迟辞谤鈥塷蹿鈥塱=6%,鈥塶=20=$600,000脳鈥�0.312=$187,200鈥�

Present value of interest:

笔谤别蝉别苍迟鈥塚补濒耻别=鈥碱尘辞耻苍迟鈥塷蹿鈥塭补肠丑鈥塩补蝉丑鈥塮濒辞飞鈥夆赌壝椻赌碱苍苍耻颈迟测鈥夆赌塒痴鈥塮补肠迟辞谤鈥塷蹿鈥塱=6%,鈥塶=20=$27,750脳鈥�11.470=$318,293鈥�

Present value at issuance:

笔谤别蝉别苍迟鈥塚补濒耻别=鈥塒谤别蝉别苍迟鈥夆赌塚补濒耻别鈥夆赌塷蹿鈥夆赌塒谤颈苍肠颈辫补濒+鈥塒谤别蝉别苍迟鈥夆赌塚补濒耻别鈥夆赌塷蹿鈥塈苍迟别谤别蝉迟=鈥�$187,200+鈥�$318,293=鈥�$505,493

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Most popular questions from this chapter

What type of account is Premium on Bonds Payable? What is its normal balance? Is it added to or subtracted from the Bonds Payable account to determine the carrying amount?

Retiring bonds payable before maturity

On January 1, 2018, Powell Company issued $350,000 of 10%, five-year bonds payable

at 102. Powell Company has extra cash and wishes to retire the bonds payable on

January 1, 2019, immediately after making the second semiannual interest payment. To

retire the bonds, Powell Company pays the market price of 98.

Requirements

1. What is Powell Company鈥檚 carrying amount of the bonds payable on the retirement

date?

2. How much cash must Powell Company pay to retire the bonds payable?

3. Compute Powell Company鈥檚 gain or loss on the retirement of the bonds payable.

Bond prices depend on the market rate of interest, stated rate of interest,and time.

Requirements

1. Compute the price of the following 8% bonds of Country Telecom.

a. \(100,000 issued at 75.25

b. \)100,000 issued at 103.50

c. \(100,000 issued at 94.50

d. \)100,000 issued at 103.25

2. Which bond will Country Telecom have to pay the most to retire at maturity?

Explain your answer.

Where is the current portion of notes payable reported on the balance sheet?

What is the journal entry to retire bonds at maturity?
See all solutions

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