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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Exercise Completing a Bond Amortization Table (Effective Interest Rate Method

MacBride Enterprises sold S200,000 of bonds on January 1, 2020. A portion of the amortization table appears below.

Period

Cash Payment (Credit)

Interest Expense (Debit)

Premium on Bonds Payable (Debit)

Premium on Bonds Payable Balance

Carrying

Value

At issue

S6-457

52(16,457

06/30/20

$9,000

$8,465

$535

5,922

205,922

12/31/20

9,000

8,443

557

5,365

205,365

06/30/21

9,000

8,420

580

4,785

204,785

12/31/21

?

?

?

?

?

Required:

  1. Indicate the stated annual interest rate on these bonds.
  2. Calculate the effective annual interest rate on these bonds. (Note: Round to the nearest 0.1%.)
  3. Determine the interest expense and premium amortization for the interest period ending December 31, 2021. (Note: Round to the nearest dollar.)

4.Determine when the bonds will mature.

Use the following information for Exercises 9-83 and 9-84:

Dandy Candy bought a delivery vehicle for S45,000 by issuing an 8% installment note on January 1, 2021. Dandy will make 12 monthly payments of $3,914.50 at the end of each month.

To determine

(a)

Introduction:

As per the effective interest rate method, a constant interest rate on book or carrying value is assigned to each period.

To calculate:

Stated rate of interest on bonds.

Explanation

Given:

$200,000 were issued on 1st January 2020 and portion of amortization table:

Annual Period Cash Payment (Credit) Interest Expense (Debit) Premium on Bonds Payable (Debit) Premium on Bonds Payable Balance Carrying Value
At issue 6,457 206,457
06/30/2020 9,000 8,465 535 5,922 205,922
12/31/2020 9,000 8,443 557 5,365 205,365
06/30/2021 9,000 8,420 580 4,785 204,785
12/31/2021 ? ? ?
To determine

(b)

Introduction:

A Bond is long term liability wherein the issuer is entitled to pay the face value of the Bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

The Effective annual interest rate on bonds.

To determine

(c)

Introduction:

A Bond is long term liability wherein the issuer is entitled to pay the face value of the Bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

The interest expense and premium amortized for period ending on 31st Dec 2021.

To determine

(d)

Introduction:

A Bond is long term liability wherein the issuer is entitled to pay the face value of the Bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To find:

Maturity date of the bonds.

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