Question

Harrison Ltd. issued $4,000,000 of bonds payable on 30 April 20X0. The bonds are due on 30 April 20X8, and bear interest at 4.5% per annum, payable every 30 October and 30 April. The bonds were issued to yield 5% per annum. Harrison's fiscal year ends on 31 December. Harrison uses the effective interest method of amortization. (PV of $1. PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.) Required: 1. Calculate the proceeds from issuance. (Round time value factor to 5 decimal places. Do not round intermediate calculations.) 2. Calculate the proceeds from issuance if the yield rate is 4% and the bond is issued on 30 October 20X2, still with a maturity date of 30 April 20X8. (Round time value factor to 5 decimal places. Round your final answer to the nearest whole dollar amount. Do not round intermediate calculations.) 3. Calculate the proceeds from issuance if the yield rate is 8%, and the bond is issued on 30 April 20X1, still with a maturity date of 30 April 20X8. (Round time value factor to 5 decimal places. Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) 4. Assume that on 30 October 20x5 the market rate of interest is 10% for notes of similar risk and maturity. a. Determine the book value (including unamortized discount/premium) that will be shown on the statement of financial position at that date assuming the bond was issued as in requirement 1. (Round time value factor to 5 decimal places Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) b. Determine the fair value that will be disclosed in the notes. (Round time value factor to 5 decimal places. Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

Answer 1

Formula to calculate Bond Price:
Half year interest * PVIFA(2.5%, 16) + Par Value * PVIF(2.5%, 16)
Req 1)
Issuance Price: (4000000*2.25%)* 13.055 + 4000000 * 0.6736 =
3869350
Req 2)	Period = 11 Half year interest payments
Issuance Price: (4000000*2.25%)* PVIFA(2%, 11) + 4000000 * PVIF(2%, 11) =
Issuance Price: (4000000*2.25%)* 9.7868 + 4000000 * 0.8043 = 4098012
Req 3)	Period = 14 Half year interest payments
Issuance Price: (4000000*2.25%)* PVIFA(4%, 14) + 4000000 * PVIF(4%, 14) =
Issuance Price: (4000000*2.25%)* 10.5631 + 4000000 * 0.5775 = 3260679
Req 4)
a) Book value of Bond on 30 Oct 20X5: $3953411
as per details underneath:
Date	Cash interest	Interest Exp.	Discount Amortised	Carried Amount
4/30/20X0		(carrying * 2.5%)		3869350
10/30/20X0	90000	96734	6734	3876084
4/30/20X1	90000	96902	6902	3882986
10/30/20X1	90000	97075	7075	3890060
4/30/20X2	90000	97252	7252	3897312
10/30/20X2	90000	97433	7433	3904745
4/30/20X3	90000	97619	7619	3912363
10/30/20X3	90000	97809	7809	3920173
4/30/20X4	90000	98004	8004	3928177
10/30/20X4	90000	98204	8204	3936381
4/30/20X5	90000	98410	8410	3944791
10/30/20X5	90000	98620	8620	3953411
b) Fair Value:
Fair Value: (4000000*2.25%)* PVIFA(4%, 5) + 4000000 * PVIF(4%, 5) =
Fair Value: (4000000*2.25%)* 2.3350 + 4000000 * 0.8219 = 3497750