What is the remaining balance after the first 4 years?iv.(Ch. 12) Sandi & Co. sold/issued $200,000 of 5-year bonds on January 1, 2017 promising to pay an 8% annualinterest rate with payments every 6 months (semiannually) until the date of maturity. At the time of the salethe prevailing interest rate in the open market was 10%. Sandi & Co. amortizes discounts/premiums onbonds payable using the effective interest method.a. Calculate the amount of cash that was received by Sandi & Co. on January 1, 2017.b. Prepare an amortization schedule showing the life-cycle of the bond (all 5 years). The scheduleshould show all of the following: # of periods, Beginning balance (carrying value right before eachpayment is made), interest rate, TIME, calculated interest expense for that period, total cashpayment for each payment, amortization of premium/d iscount with each payment, balance ofbond payable account after each payment, balance of premium/discount on bonds payable aftereach payment, and the carrying value after each payment. The schedule should also show the totalcash paid out for all 10 payments, including the principal paid back at maturity.c. Clearly answer the following questions in written format:i. What is the total interest expense that Sandi & Co. will recognize over the life of the bond?ii. What is the beginning discount/premium on the date the bond is issued?iii. What is the ending discount/premium after the last semi-annual payment is made, butbefore the face value is paid?iv. What is the total amount of cash paid in semiannual payments over the life of the bond?v. What is the amount of cash paid to bondholders on the maturity date, not including anysemi-annual payments?

Question
Asked Nov 24, 2019
22 views

I need help with all of question 2.

What is the remaining balance after the first 4 years?
iv.
(Ch. 12) Sandi & Co. sold/issued $200,000 of 5-year bonds on January 1, 2017 promising to pay an 8% annual
interest rate with payments every 6 months (semiannually) until the date of maturity. At the time of the sale
the prevailing interest rate in the open market was 10%. Sandi & Co. amortizes discounts/premiums on
bonds payable using the effective interest method.
a. Calculate the amount of cash that was received by Sandi & Co. on January 1, 2017.
b. Prepare an amortization schedule showing the life-cycle of the bond (all 5 years). The schedule
should show all of the following: # of periods, Beginning balance (carrying value right before each
payment is made), interest rate, TIME, calculated interest expense for that period, total cash
payment for each payment, amortization of premium/d iscount with each payment, balance of
bond payable account after each payment, balance of premium/discount on bonds payable after
each payment, and the carrying value after each payment. The schedule should also show the total
cash paid out for all 10 payments, including the principal paid back at maturity.
c. Clearly answer the following questions in written format:
i. What is the total interest expense that Sandi & Co. will recognize over the life of the bond?
ii. What is the beginning discount/premium on the date the bond is issued?
iii. What is the ending discount/premium after the last semi-annual payment is made, but
before the face value is paid?
iv. What is the total amount of cash paid in semiannual payments over the life of the bond?
v. What is the amount of cash paid to bondholders on the maturity date, not including any
semi-annual payments?
help_outline

Image Transcriptionclose

What is the remaining balance after the first 4 years? iv. (Ch. 12) Sandi & Co. sold/issued $200,000 of 5-year bonds on January 1, 2017 promising to pay an 8% annual interest rate with payments every 6 months (semiannually) until the date of maturity. At the time of the sale the prevailing interest rate in the open market was 10%. Sandi & Co. amortizes discounts/premiums on bonds payable using the effective interest method. a. Calculate the amount of cash that was received by Sandi & Co. on January 1, 2017. b. Prepare an amortization schedule showing the life-cycle of the bond (all 5 years). The schedule should show all of the following: # of periods, Beginning balance (carrying value right before each payment is made), interest rate, TIME, calculated interest expense for that period, total cash payment for each payment, amortization of premium/d iscount with each payment, balance of bond payable account after each payment, balance of premium/discount on bonds payable after each payment, and the carrying value after each payment. The schedule should also show the total cash paid out for all 10 payments, including the principal paid back at maturity. c. Clearly answer the following questions in written format: i. What is the total interest expense that Sandi & Co. will recognize over the life of the bond? ii. What is the beginning discount/premium on the date the bond is issued? iii. What is the ending discount/premium after the last semi-annual payment is made, but before the face value is paid? iv. What is the total amount of cash paid in semiannual payments over the life of the bond? v. What is the amount of cash paid to bondholders on the maturity date, not including any semi-annual payments?

fullscreen
check_circle

Expert Answer

Step 1

Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and specify the other subparts (up to 3) you’d like answered

Step 2

1. The amount realised on sale of bond is the present value of the expected cash flows from the bond.Present value of the bond is the present value of the interest payments and the present value of the amount payable on redemption of bond.

1 Face value of the bond
200,000
Bond interest rate p.a.
8%
Semi-annual interest rate
4%
Period (semi-annual)
10
Semi-annual market interest rate
5%
Interest to be received on bonds every 6 months
|(200000*4%) (a)
PV of annuity of $1 (r=5%,n=10) (b)
PV of interest on bonds (a*b)
8000
7.7217
61773.6
Now, the face value of the bond redeemable after 5 years
200,000
PV of $1 (r=10%,n=5) (d)
PV of the redemption value (c "d)
0.6209
124180
Present value of the bond
Present vaue of interest payments
61773.6
Add Present value of redemption amount
124180
Present value of bond
185953.6
help_outline

Image Transcriptionclose

1 Face value of the bond 200,000 Bond interest rate p.a. 8% Semi-annual interest rate 4% Period (semi-annual) 10 Semi-annual market interest rate 5% Interest to be received on bonds every 6 months |(200000*4%) (a) PV of annuity of $1 (r=5%,n=10) (b) PV of interest on bonds (a*b) 8000 7.7217 61773.6 Now, the face value of the bond redeemable after 5 years 200,000 PV of $1 (r=10%,n=5) (d) PV of the redemption value (c "d) 0.6209 124180 Present value of the bond Present vaue of interest payments 61773.6 Add Present value of redemption amount 124180 Present value of bond 185953.6

fullscreen
Step 3
2 Face value of the bond
Amount realised on sale
Discount to be amortised
200000
185953.6
14046.4
help_outline

Image Transcriptionclose

2 Face value of the bond Amount realised on sale Discount to be amortised 200000 185953.6 14046.4

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Accounting

Related Accounting Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: Please answer 7, 9,10,11. Thank you.

A: Since you have asked multiple question, we will solve the first question for you (i.e. Q7).  If you ...

question_answer

Q: Segment Contribution Margin Analysis The operating revenues of the three largest business segments f...

A: a) Compute the contribution margin and the contribution margin ratio:

question_answer

Q: Discuss the types of reserves.

A: Reserves are the funds kept by the company for specific purpose which the company intends to use in ...

question_answer

Q: The pertinent information about a piece of construction equiptment follows: cost $75,000 Estimated U...

A: Double declining balance method is used in charging depreciation on assets. Under this method, the a...

question_answer

Q: Direct Materials Variances Bellingham Company produces a product that requires 9 standard pounds per...

A: Variance is referred as the difference. In calculating price variance, a difference in the standard ...

question_answer

Q: Parrish 2-8 Pg. 38 #4Please put the following transactions in a T-Account formatand find the missing...

A: The records maintained as per the double entry system of book keeping is known as T-Account.T-Accoun...

question_answer

Q: Sheridan Corp. incurred $890000 of research and development costs to develop a product for which a p...

A: Research and development costs are expensed in the period in which it is incurred. Thus, the researc...

question_answer

Q: Distinguish between cash basis and accrual basis of account.

A: Accounting: Accounting is an art of recording, classifying, analyzing and summarizing the financial ...

question_answer

Q: Explain the step by step instructions given the following data for the questions below.       ...

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question s...