Homework Answers
| Part 1 : Solve For Present Value (PV) | ||||||
| Period | Item | Cash flow | PVAF/PVF @3% | Present value of cash flow | ||
| 1 to 12 | Interest payment | 20,000.00 | 9.954 | 199,080.00 | ||
| 12 | Principle payment | 1,000,000.00 | 0.701 | 701,380.00 | ||
| Present Value | 900,460.00 | |||||
| Part 2 - Others | |||||
| Annual Market Interest rate | Quarterly market interest rate | ||||
| 12% | 3% | ||||
| Annual stated interest rate | Quarterly stated interest rate | ||||
| 8% | 2% | ||||
| Number of quarters | |||||
| 3 years x 4 quarters = 12 quarters | |||||
| Face Value of the notes payable | |||||
| $1,000,000 | |||||
| Present Value of Notes payable | |||||
| $900,460 | |||||
| Notes payable is issued at a discount of $99,540 | |||||
| PART 3 - JOURNAL | |||||
| 1. At the time of borrowing | |||||
| Cash | 900,460.00 | ||||
| Discount on Bond payable | 99,540.00 | ||||
| To Bond payable | 1,000,000.00 | ||||
| (to issue bond) | |||||
| 2. At the time of interest payment | |||||
| Interest expense | 28,295.00 | ||||
| To Discount on bond payable | 8,295.00 | ||||
| To Cash | 20,000.00 | ||||
| (Payment and amortization of interest using in straight line method | |||||
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Problem 5 Use the Excel template to build a spreadsheet for a purchase of $1,000,000 face...
Problem 5
Use the Excel template to build a spreadsheet for a purchase of
$1,000,000 face value, 6% 5-year bond with interest payments every
6 months. Market interest rate is 5%. Include the following
items:
Inputs:
Bond initial purchase amount
Stated Interest Rate
Maturity in Years
Number of payments/year
Market interest rate
Calculations section 1:
--Fair value with separate calculations for interest and
principal
--Discount or premium
--Record the journal entry required when the bonds are
purchased.
Calculations Section 2:...
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Problem 5
Use the Excel template to build a spreadsheet for a purchase of
$1,000,000 face value, 6% 5-year bond with interest payments every
6 months. Market interest rate is 5%. Include the following
items:
Inputs:
Bond initial purchase amount
Stated Interest Rate
Maturity in Years
Number of payments/year
Market interest rate
Calculations section 1:
--Fair value with separate calculations for interest and
principal
--Discount or premium
--Record the journal entry required when the bonds are
purchased.
Calculations Section 2:...
! Required information [The following information applies to the questions displayed below.] Cron Corporation is planning to issue bonds with a face value of $860,000 and a coupon rate of 13 percent. The bonds mature in five years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Cron uses the effective-interest amortization method. Assume an annual market rate of interest of 12 percent. (FV of $1, PV...
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