Question

Il Till your answer in the space provided or on a separate sheet of paper. 9) Assignment of Receivables : On 06/30/18, The Mountain Sports Company had outstanding accounts receivable of $800,000. On July 1, 2018, the company borrowed $450,000 from the Chase Bank and signed a promissory note. Interest at 8% payable monthly. Chase Bank charges a finance fee equal to 2% of the accounts receivable assigned. REQUIRED: Prepare the journal entry to record the borrowing on the books of the Mountain Sports Company. 10) Factoring Without Recourse: On 07/01/18, Barista Coffee Exporters transfers $650,000 of specific receivables to the Bank of America (BOA) without recourse. BOA remits 90% of the factored amount and retains 10%. When BOA collects from the customers, it remits to Barista Coffee Exporters the retained amount less a 3% fee (3% of the total factored amount). Barista estimates the value value of the retained receivables to be $65,000. REQUIRED: Prepare the journal entry on 07/01/18 to record the transfer of the receivables 11) Time Value of Money Problem: Price of a Bond On the last day of its fiscal year ending December 31, 2016, XYZ Company issued 6% stated rate bonds with a face amount of $200 million. The bonds mature on December 31, 2036 (20 years). The market rate of interest for similar bond issues was 8% (4% semiannual rate). Interest is paid semiannually (3%) on June 30 and December 31, beginning on June 30, 2017. Required: Compute the price of the Bonds. Show your computations

Answer 1

9..
1-Jul-18	Accounts receivable-assigned	450000
	Accounts receivable		450000
	(To record the assigned a/cs receivable)
	Cash(450000-9000)	441000
	Service charge(450000*2%)	9000
	Note payable -Bank		450000
	(to record the borrowing from bank)
31-Jul	Interest expense	3000
	Interest payable		3000
	(450000*8%/12)
	(To accrue interest on Note payable to bank for the mth.

10..
7/1/2018	Cash (650000-60000)	590000
	Due from factor (BOA)(650000*10%)	65000
	Accounts receivable		650000
	(To record factoring of receivables)
	Cash (65000-19500)	45500
	Loss of factoring(650000*3%)	19500
	Due from factor(BOA)(650000*10%)		65000
	(Remittance by BOA on collection of factored receivables)

11. Price of the bonds is the

Sum of the present values of all the future semi-annual coupon cash flows PLUS

the present value of the face value to be received at the bond's maturity .

both discounted at the market interest rate

ie. PV=(pmt.*(1-(1+r)^-n)/r)+(FV/(1+r)^n)

where,

PV= price to be found--- ??

pmt.= the semi annual coupon pmt.= 200 mln.*3%= $ 6 mln.

r= the semi-annual mkt.int. rate= 8%/2=4% or 0.04

n= no.of semi-annual coupons still pending to maturity, ie. 20 yrs. *2=40

FV= the face value of the bond= $ 200 mln.

Now, plugging in the values in the formula,

PV/Price of the bond=

PV=(6*(1-(1+0.04)^-40)/0.04)+(200/(1+0.04)^40)=

160.414452

Millions

or $ 160 millions.

Price of the bonds= $ 160 milions