Compute Bond Proceeds, Amortizing Premium by Interest Method, and Interest Expense Ware Co. produces and sells motorcycle parts. On the first day of its fiscal year, Ware Co. issued $20,000,000 of four-year, 14% bonds at a market (effective) interest rate of 12%, with interest payable semiannually. Compute the following: a. The amount of cash proceeds from the sale of the bonds. Use the tables of present values in Exhibit 8 and Exhibit 10. Round to the nearest dollar. b. The amount of premium to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar. c. The amount of premium to be amortized for the second semiannual interest payment period, using the interest method. Round to the nearest dollar. d. The amount of the bond interest expense for the first year. Round to the nearest dollar.
Compute Bond Proceeds, Amortizing Premium by Interest Method, and Interest Expense Ware Co. produces and sells motorcycle parts. On the first day of its fiscal year, Ware Co. issued $20,000,000 of four-year, 14% bonds at a market (effective) interest rate of 12%, with interest payable semiannually. Compute the following: a. The amount of cash proceeds from the sale of the bonds. Use the tables of present values in Exhibit 8 and Exhibit 10. Round to the nearest dollar. b. The amount of premium to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar. c. The amount of premium to be amortized for the second semiannual interest payment period, using the interest method. Round to the nearest dollar. d. The amount of the bond interest expense for the first year. Round to the nearest dollar.
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 15MCQ
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Transcribed Image Text:Compute Bond Proceeds, Amortizing Premium by Interest Method, and Interest Expense
Ware Co. produces and sells motorcycle parts. On the first day of its fiscal year, Ware Co. issued $20,000,000 of four-year, 14% bonds at a market (effective) interest
rate of 12%, with interest payable semiannually. Compute the following:
a. The amount of cash proceeds from the sale of the bonds. Use the tables of present values in Exhibit 8 and Exhibit 10. Round to the nearest dollar.
b. The amount of premium to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar.
c. The amount of premium to be amortized for the second semiannual interest payment period, using the interest method. Round to the nearest dollar.
d. The amount of the bond interest expense for the first year. Round to the nearest dollar.
Transcribed Image Text:Present Value of $1 at Compound Interest
EXHIBIT 8
Periods
4%
42%
5%
52%
6%
6½%
7%
10%
11%
12%
13%
1
0.96154
0.95694
0.95238
0.94787
0.94340
0.93897
0.93458
0.90909
0.90090
0.89286
0.88496
2
0.92456
0.91573
0.90703
0.89845
0.89000
0.88166
0.87344
0.82645
0.81162
0.79719
0.78315
3
0.88900
0.87630
0.86384
0.85161
0.83962
0.82785
0.81630
0.75131
0.73119
0.71178
0.69305
4
0.85480
0.83856
0.82270
0.80722
0.79209
0.77732
0.76290
0.68301
0.65873
0.63552
0.61332
0.82193
0.80245
0.78353
0.76513
0.74726
0.72988
0.71299
0.62092
0.59345
0.56743
0.54276
6
0.79031
0.76790
0.74622
0.72525
0.70496
0.68533
0.66634
0.56447
0.53464
0.50663
0.48032
7
0.75992
0.73483
0.71068
0.68744
0.66506
0.64351
0.62275
0.51316
0.48166
0.45235
0.42506
8
0.73069
0.70319
0.67684
0.65160
0.62741
0.60423
0.58201
0.46651
0.43393
0.40388
0.37616
0.70259
0.67290
0.64461
0.61763
0.59190
0.56735
0.54393
0.42410
0.39092
0.36061
0.33288
10
0.67556
0.64393
0.61391
0.58543
0.55839
0.53273
0.50835
0.38554
0.35218
0.32197
0.29459
EXHIBIT 1о
Present Value of an Annuity of $1 at Compound Interest
Periods
4%
42%
5%
52%
6%
6½%
7%
10%
11%
12%
13%
1
0.96154
0.95694
0.95238
0.94787
0.94340
0.93897
0.93458
0.90909
0.90090
0.89286
0.88496
2
1.88609
1.87267
1.85941
1.84632
1.83339
1.82063
1.80802
1.73554
1.71252
1.69005
1.66810
3
2.77509
2.74896
2.72325
2.69793
2.67301
2.64848
2.62432
2.48685
2.44371
2.40183
2.36115
3.62990
3.58753
3.54595
3.50515
3.46511
3.42580
3.38721
3.16987
3.10245
3.03735
2.97447
5
4.45182
4.38998
4.32948
4.27028
4.21236
4.15568
4.10020
3.79079
3.69590
3.60478
3.51723
6
5.24214
5.15787
5.07569
4.99553
4.91732
4.84101
4.76654
4.35526
4.23054
4.11141
3.99755
7
6.00205
5.89270
5.78637
5.68297
5.58238
5.48452
5.38929
4.86842
4.71220
4.56376
4.42261
6.73274
6.59589
6.46321
6.33457
6.20979
6.08875
5.97130
5.33493
5.14612
4.96764
4.79677
7.43533
7.26879
7.10782
6.95220
6.80169
6.65610
6.51523
5.75902
5.53705
5.32825
5.13166
10
8.11090
7.91272
7.72173
7.53763
7.36009
7.18883
7.02358
6.14457
5.88923
5.65022
5.42624
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