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Chapter 12: Q5SE_3 (page 656)

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?

Short Answer

Expert verified

Answer:

The amount of six months鈥� interest is $157,500.

Step by step solution

01

Definition of Time period

Time period is the duration in terms of days, months or year which are used tocalculate the interest amount.

02

Interest of six months

Interest=facevalueofbond脳Interestrate脳timeperiod=$3,500,000脳9%脳612=$157,500

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Most popular questions from this chapter

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.

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%.

What does the debt to equity ratio show, and how is it calculated?

Computing the debt to equity ratio

Jackson Corporation has the following amounts as of December 31, 2018.

Total assets $ 55,250

Total liabilities 22,750

Total equity 32,500

Compute the debt to equity ratio on December 31, 2018.

On January 1, 2018, Fox Corporation signed an \(80,000, four-year, 4% note. The loan required Fox to make payments annually

on December 31 of \)20,000 principal plus interest.

1. Journalize the issuance of the note on January 1, 2018.

2. Journalize the first payment on December 31, 2018.
See all solutions

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