From page 9-2 of the VLN, how do you determine the annuity cash flow (the bond interest payment) from an annual bond?Group of answer choicesA. Bond payable x stated rateB. Bond liability x stated rateC. Bond payable x market rateD. Bond liability x market rate Part A: Long Term DebtAnancing AltemativesDebt versus EquityInterest versus dividendsCapital structureFinancial leverageTypes of Long Term Debt1. Notes Payable or Installment Notes2. Leases3. BondsInstallment NotesRecurring payments (installments)Once all payments are made the debt is extinguishedInstallment payments (includes both principal (decrease in carrying value) and interest)Practice: Loan Amortization schedule:You purchased a car for $22,999.79 (tax, tag, title) and agreed to make monthly payments of$370.41 for 6 years (72 months). Annual interest rate 5% (monthly 0.41667%)TimeCash PaymentInterest expense @Decrease inCarrying Value.0041667Carrying ValueToday1" payment2nd payment3rd payment4th payment5th payment$22,999.7922,725.2122,449.4922,172.6221,894.60$274.58$370.41370.41370.41$95.8394.69275.7293.54276.87370.4192.39278.02370.416-71本本******payments368.87******72nd payment370.411.54368.87You are getting ready to make your 5th car payment. Determine your interest expense, decrease incarrying value and new debt balance after the payment has been made.Interest expense:Decrease in Carry value:New Carrying value: LeasesA lease provides the lessee (user) the right to use an asset for a specified period of time.BONDSWhat are Bonds and why do corporations issue them?TERMS (pay close attention to terminology):Face value (aka bond payable, bond principal, or maturity value) is the contract amount and is afuture cash flow the company will pay at maturity.Bond Liability (aka bond carrying amount) the liability on the balance sheet related to the bondand is made up of bond payable + bond premium or bond payable-bond discount.Stated rate (aka contract rate) the rate promised by the issuer. It is the rate used to calculate theinterest paymént. (Bond payable x stated rate = annual interest payment, a cash flow)ABC Corporation$1,00010% interestInterest payableJune 30 and December 31Matures December 31, 20XE5 year bond+Following are the cash flows provided by the above bond ($1,000 face, 10% semi-annual interest)$1000$50$50$50$50$50$50$50$50$50$50148.9.10Market rate (aka, effective interest rate) the true interest rate yielded by the bond1.The market rate is used to calculate the bond issue price; andit is used to calculate bond interest expense (bond liability x market rate annual interestexpense).2.Parts B & C: BOND PRICING and RECORDINGWe will use the present value concepts to determine the issue price of the bonds (Present valuetables from Module 8 in Canvas; or use your TI BAII Plus Financial Calculator).

Interest payment annual cash flows which is paid to the bond holders regularly till bonds are…

2 of the VLN, how do you determine the annuity cash flow (the bond interest payment) from an annual bond? Group of answer choices A. Bond payable x stated rate B. Bond liability x stated rate C. Bond payable x market rate D. Bond liability x market rate

2 of the VLN, how do you determine the annuity cash flow (the bond interest payment) from an annual bond? Group of answer choices A. Bond payable x stated rate B. Bond liability x stated rate C. Bond payable x market rate D. Bond liability x market rate

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 52BE

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