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Chapter 12: Q4SE_2 (page 656)

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.

Short Answer

Expert verified

2. All bonds pay the same at maturity of the bonds.

Step by step solution

01

Definition of maturity period

The time period over which bonds remain effective and bondholder receive interest is known as maturity period.

02

Band that pays most to retire at maturity

Bonds are generally redeemable at par value if nothing special given, therefore Country Telecom has to pay $100,000 at maturity for all bonds. Hence all bonds have the same maturity value.

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Most popular questions from this chapter

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

Determining the present value of bonds payable

Interest rates determine the present value of future amounts. (Round to the nearest

dollar.)

Requirements

1. Determine the present value of 10-year bonds payable with face value of $86,000

and stated interest rate of 14%, paid semiannually. The market rate of interest is

14% at issuance.

2. Same bonds payable as in Requirement 1, but the market interest rate is 16%.

3. Same bonds payable as in Requirement 1, but the market interest rate is 12%.

Determining bond amounts

Savvy Drive-Ins borrowed money by issuing $3,500,000 of 9% bonds payable

at 99.5. Interest is paid semiannually.

Requirements

1. How much cash did Savvy receive when it issued the bonds payable?

2. How much must Savvy pay back at maturity?

3. How much cash interest will Savvy pay each six months?

Preparing an amortization schedule and recording mortgages payable

entries

Kellerman Company purchased a building and land with a fair market value of

\(550,000 (building, \)425,000, and land, \(125,000) on January 1, 2018. Kellerman

signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of

\)3,940.37. Round to two decimal places. Explanations are not required for journal

entries.

Requirements

1. Journalize the mortgage payable issuance on January 1, 2018.

2. Prepare an amortization schedule for the first two payments.

3. Journalize the first payment on January 31, 2018.

4. Journalize the second payment on February 28, 2018.

Accounting for mortgages payable

Ember Company purchased a building with a market value of \(280,000 and land with

a market value of \)55,000 on January 1, 2018. Ember Company paid \(15,000 cash and

signed a 25-year, 12% mortgage payable for the balance.

Requirements

1. Journalize the January 1, 2018, purchase.

2. Journalize the first monthly payment of \)3,370 on January 31, 2018. (Round to the

nearest dollar.)
See all solutions

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