Accounting 3rd May

Abstract

Question 4 Leyvon Company issues $10000000, 5%, 5-year bonds dated July 1, 2017 on July 1 2017. The bonds pay interest semi-annually on December 31 and June 30. The bonds are issued to yield 6%. What are the proceeds from the bonds issue? Present value of a bond= present value of a bond's interest payments + present value of a bond's maturity amount Coupon payment (C) = $10000000*0.025=$250000 n = 5 years i = market rate (required yield) = 6.000% = 0.06 while the adjusted market rate is 3 % k = 2 (Semi-annually) P = Par/Face value = 10000000 present value of a bond's maturity amount= P * ( 1 + r )n = 10000000 * ( 1 + 6/100 )10= 7440939.15 Present Value of Interest Payments = Payment Value * (1 - (Market Rate / 100) ^ -Number Payments) / Number Payments) =300000*(1-0.06) ^10/10) =2132550.71 Hence, present value of a single sum at 2.5% for 10 periods)*$10000000 + Present value of annuity which is due at 2.5% for 10 periods= 2132550.71 +7440939.15= $9,573,489.86 Question 8 The Gorman Group issued $9000000 of 13% bonds on June 30, 2013, for$ 967707. The bonds were dated on June 30 and mature on June 30, 2033 (20 years). The market yield for the bonds of similar risk and maturity is 12%. Interest is paid semi-annually on December 31 and June 30. Company uses the effective rate. Prepare the amortization schedule for the bonds (2013 and 2014) $9000000 of 13% bonds on June 30, 2013, for$ 967707. Amortization of bonds= Interest expense 967707 *6%=$58062.42 and Premium on bonds payable of $437. 2014 Cash = $900,000 × 6.5%         = $58,500 Interest expense = ($967,707 - $438) × 6%                              = $58,036.20 Question 4 Sebas Company issues $15000000, 7%, 5-year bonds dated July 1, 2017. The...