Assume bonds payable are amortized using the straight-line amortization method unless stated otherwise.Determining the present value of bonds payableInterest rates determine the present value of future amounts. (Round to the nearest dollar.)RequirementsDetermine the present value of 10-year bonds payable with the face value of $86,000 and stated interest rate of 14%, paid semiannually. The market rate of interest is 14% at issuance.The same bonds payable as in Requirement 1, but the market interest rate is 16%.The same bonds payable as in Requirement 1, but the market interest rate is 12%.

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Asked Jan 20, 2020
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Assume bonds payable are amortized using the straight-line amortization method unless stated otherwise.

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 the face value of $86,000 and stated interest rate of 14%, paid semiannually. The market rate of interest is 14% at issuance.
  2. The same bonds payable as in Requirement 1, but the market interest rate is 16%.
  3. The same bonds payable as in Requirement 1, but the market interest rate is 12%.
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Expert Answer

Step 1

1.

Face value is $86,000

Interest rate on bonds is 14%

The bonds are issued for 10 years

Interest is to be paid semi-annually; hence there shall be 20 interest payments.

The market rate of interest is 14% that means 75 semi-annually.

The present value of $1 annuity at 7% for 20 periods is 10.59401.

The present value of $1 at 7% for 20 periods is 0.25842.

Step 2

Compute present value of principal payment.

Accounting homework question answer, step 2, image 1
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Step 3

 

2.

Face value is $86,000

Interest rate on bonds is 14%

The bonds are issued for 10 years

Interest is to be paid semi-annually; hence there shall be 20 interest payments.

The market rate of interes...

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