Answered: 10% for 5 seriods - 0.62

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 16E

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Seiko Company purchased 1,000, $ 1,000, 10%, 5-year bonds of CPA Company. The bonds are dated January 1, 2020 and pay interest every December 31. The bonds yield an 8% interest. The present value factors are as followsPV of 1 at 8% for 5 periods -0.68: PV of 1 at 10% for 5 seriods - 0.62 PV of an annuity of 1 at 8% for 5 periods - 3.99; PV of annuity of 1 at 10% for 5 periods - 3.79 The bonds are quoted at 110 and 105 on December 31, 2020 and 2021 respectively. Assuming the business model of the company is to manage financial assets in order to collect contractual cash flows, what is the initial measurement of the investment in bonds on January 1, 2020?

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