BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

Solutions

Chapter
Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Present value of bonds payable; premium

Moss Co. issued $42,000,000 of five-year, 11% bonds, with interest payable semiannually, at a market (effective) interest rate of 9%. Determine the present value of the bonds payable using the present value tables in Exhibits 8 and 10. Round to the nearest dollar.

To determine

Time value of money: Any amount invested today earns an additional income, called interest income, after a certain period. This is called as time value of money.

Present Value: The value of today’s amount expected to be paid or received in the future at a compound interest rate is called as present value.

To calculate: The present value of the bonds payable.

Explanation

Determine the present value of the bonds payable.

Step 1: Calculate the semiannual interest on bonds.

Interest=Face value×Face interest rate×Interest time period=$42,000,000×11%×612=$2,310,000

Step 2: Calculate the present value of interest.

Particulars Amount
Interest payment (a) $2,310,000
PV factor at semiannual market interest rate of 4.5% for 10 periods (b) 7.91272
Present value (a)×(b) $18,278,383

Table (1)

Note: The present value factor for 10 periods at 4.5% interest would be 7.91272 (Refer Exhibit 10 in the chapter for present value factor).

Step 3: Calculate the present value of lump sum payment of $42,000,000 (principal amount) at 4.5% for 10 periods.

Particulars Amount
Single payment (a) $42,000,000
PV factor at semiannual market interest rate of 4

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Should an economic model describe reality exactly?

Principles of Economics (MindTap Course List)

List the four components of GDP. Give an example of each.

Brief Principles of Macroeconomics (MindTap Course List)

Explain the advantage of establishing a tax calendar.

College Accounting (Book Only): A Career Approach

How are the three financial statements shown in this chapter connected?

College Accounting (Book Only): A Career Approach

What is the AP/CD process?

Pkg Acc Infor Systems MS VISIO CD

TIME FOR A LUMP SUM TO DOUBLE If you deposit money today in an account that pays 6.5% annual interest how long ...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Explain how backflush costing works.

Cornerstones of Cost Management (Cornerstones Series)