On January 01, 2019, SUNOD NA ANG LEASES LTD. issued 3-year bonds with face value of P5,000,000 at 99. The nominal rate is 10% and the interest is payable annually on December 31. Additionally, it paid bond issue cost of P150,000. Suppose the bonds were issued in the amount of P5,407,550. What is the present value of the bonds? a. P5,000,000 at face amount since as a general rule, when the problem is silent, stated rate is equal to effective rate. b. P5,407,550 is the present value. Bond issue cost should be included in the computation of the present value since under the effective interest method; this cost should be lumped together with the discount, or netted against the premium, as the case may be. c. P5,257,550 is the present value. With the nominal rate at 10%, it is understood that the bonds were issued at a premium to be amortized using the rate contained in the bond certificate. d. None of the scenarios above is correct. They are just simply "epal" and "pampalito"
On January 01, 2019, SUNOD NA ANG LEASES LTD. issued 3-year bonds with face value of P5,000,000 at 99. The nominal rate is 10% and the interest is payable annually on December 31. Additionally, it paid bond issue cost of P150,000. Suppose the bonds were issued in the amount of P5,407,550. What is the present value of the bonds? a. P5,000,000 at face amount since as a general rule, when the problem is silent, stated rate is equal to effective rate. b. P5,407,550 is the present value. Bond issue cost should be included in the computation of the present value since under the effective interest method; this cost should be lumped together with the discount, or netted against the premium, as the case may be. c. P5,257,550 is the present value. With the nominal rate at 10%, it is understood that the bonds were issued at a premium to be amortized using the rate contained in the bond certificate. d. None of the scenarios above is correct. They are just simply "epal" and "pampalito"
Chapter13: Long-term Liabilities
Section: Chapter Questions
Problem 5PA: Volunteer Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July...
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On January 01, 2019, SUNOD NA ANG LEASES LTD. issued 3-year bonds with face value of P5,000,000 at 99. The nominal rate is 10% and the interest is payable annually on December 31. Additionally, it paid bond issue cost of P150,000. Suppose the bonds were issued in the amount of P5,407,550. What is the present value of the bonds ?
a. P5,000,000 at face amount since as a general rule, when the problem is silent, stated rate is equal to effective rate.
b. P5,407,550 is the present value. Bond issue cost should be included in the computation of the present value since under the effective interest method; this cost should be lumped together with the discount, or netted against the premium, as the case may be.
c. P5,257,550 is the present value. With the nominal rate at 10%, it is understood that the bonds were issued at a premium to be amortized using the rate contained in the bond certificate.
d. None of the scenarios above is correct. They are just simply "epal" and "pampalito".
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