On January 1 of this year, Barnett Corporation sold bonds with a face value of $501,000 and a coupon rate of 5 percent. The bonds mature in 20 years and pay interest annually on December 31. Barnett uses the effective-interest amortization method. Ignore any tax effects. Each case is independent of the other cases. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answers to whole dollars.)
Required:
1. Complete the following table. The interest rates provided are the annual market rate of interest on the date the bonds were issued.
Here
CASE A
a. Cash received at issuance (Case A): Market interest 5%
| Present value: | |
| $501,000 × 0.37689 = | $188,822 |
| $ 25,050* × 12.46221 = | 312,178 |
| Issue price = | $501,000** |
*$501,000 × .05
**Using Excel or a financial calculator results in a present value of $501,000.
b. Interest expense recorded in Year 1: $501,000 × .05 = $25,050
c. Cash paid for interest in Year 1: $501,000 × .05 = $25,050
CASE B
a. Cash received at issuance (Case B): Market interest 6%
| Present value: | |
| $501,000 × 0.31180 = | $156,212 |
| $ 25,050* × 11.46992 = | 287,321 |
| Issue price = | $443,533** |
*$501,000 × .05
**Using Excel or a financial calculator results in a present value of $443,536 (rounded).
b. Interest expense recorded in Year 1: $443,533 × .06 = $26,612
c. Cash paid for interest in Year 1: $501,000 × .05 = $25,050
CASE C
a. Cash received at issuance (Case C): Market interest 4%
| Present value: | |
| $501,000 × 0.45639 = | $228,651 |
| $ 25,050* × 13.59033 = | 340,438 |
| Issue price = | $569,089** |
*$501,000 × .05
**Using Excel or a financial calculator results in a present value of $569,088 (rounded).
b. Interest expense recorded in Year 1: $569,089 × .04 = $22,764
c. Cash paid for interest in Year 1: $501,000 × .05 = $25,050
No comments:
Post a Comment