Determine the price of a $1 million bond issue under each of the following independent assumptions: (Use

Determine the price of a $1 million bond issue under each of the following independent assumptions: (Use

Table 2 and Table 4). (Round "PV Factor" to 5 decimal places, intermediate and final answers to the

nearest whole dollar amount. Omit the "$" sign in your response.)

Maturity Interest Paid Stated Rate

Effective

(Market)

Rate

Price

1. 10 years annually 9% 11% $ 882,211 ± .1%

2. 10 years semiannually 9% 11% $ 880,497 ± .1%

3. 10 years semiannually 11% 9% $ 1,130,077 ± .01%

4. 20 years semiannually 11% 9% $ 1,184,017 ± .01%

5. 20 years semiannually 11% 11% $ 999,997 ± .1%

Explanation:

1.

Maturity Interest paid Stated rate Effective (market) rate

10 years annually 9% 11%

Interest $ 90,000 ¥ × 5.88923* = $ 530,031

Principal $ 1,000,000 × .35218** = 352,180

Present value (price) of the bonds $ 882,211

¥ 9% × $1,000,000

* present value of an ordinary annuity of $1: n = 10, i = 11% (Table 4)

** present value of $1: n = 10, i = 11% (Table 2)

2.

Maturity Interest paid Stated rate Effective (market) rate

20 years semiannually 9% 11%

Interest $ 45,000 ¥ × 11.95038* = $ 537,767

Principal $ 1,000,000 × .34273** = 342,730

Present value (price) of the bonds $ 880,497

¥ 4.5% × $1,000,000

* present value of an ordinary annuity of $1: n = 20, i = 5.5% (Table 4)

** present value of $1: n = 20, i = 5.5% (Table 2)

3.

Maturity Interest paid Stated rate Effective (market) rate

20 years semiannually 11% 9%

Interest $ 55,000 ¥ × 13.00794* = $ 715,437

Principal $ 1,000,000 × .41464** = 414,640

Present value (price) of the bonds $ 1,130,077

¥ 5.5% × $1,000,000

* present value of an ordinary annuity of $1: n = 20, i = 4.5% (Table 4)

** present value of $1: n = 20, i = 4.5% (Table 2)

4.

Maturity Interest paid Stated rate Effective (market) rate

40 years semiannually 11% 9%

Interest $ 55,000 ¥ × 18.40158* = $ 1,012,087

Principal $ 1,000,000 × .17193** = 171,930

Present value (price) of the bonds $ 1,184,017

¥ 5.5% x $1,000,000

* present value of an ordinary annuity of $1: n = 40, i = 4.5% (Table 4)

** present value of $1: n = 40, i = 4.5% (Table 2)

5.

Maturity Interest paid Stated rate Effective (market) rate

40 years semiannually 11% 11%

Interest $ 55,000 ¥ × 16.04612* = $ 882,537

Principal $ 1,000,000 × .11746** = 117,460

Present value (price) of the bonds $ 999,997

actually, $1,000,000 if PV table factors were not rounded

¥ 5.5% × $1,000,000

* present value of an ordinary annuity of $1: n = 40, i = 5.5% (Table 4)

** present value of $1: n = 40, i = 5.5% (Table 2)

On January 1, a company purchased 2.2%, 20year corporate bonds for $23,282,212 as an investment. The bonds have a face amount of $79.2 million and are priced to yield 11%. Interest is paid semiannually. Prepare journal entries to record effective interest revenue on June 30 and December 31.

On January 1, a company purchased 2.2%, 20year

corporate bonds for $23,282,212 as an investment.

The bonds have a face amount of $79.2 million and are priced to yield 11%. Interest is paid semiannually.

Prepare journal entries to record effective interest revenue on June 30 and December 31. (Enter your

answers in dollars not in millions. Round "PV Factor" to 5 decimal places and final answers to the

nearest dollar amount. Omit the "$" sign in your response.)

Date General Journal Debit Credit

June 30 Cash 871,200

Discount on investment in bonds 409,322

Interest revenue 1,280,522

Date General Journal Debit Credit

Dec. 31 Cash 871,200

Discount on investment in bonds 431,834

Interest revenue 1,303,034

Explanation:

Interest will be the effective rate times the outstanding balance:

June 30

Cash (1.1% × $79,200,000) = 871,200

Interest revenue (5.5% × $23,282,212) = 1,280,522

December 31

Cash (1.1% × $79,200,000) = 871,200

Interest revenue (5.5% × [$23,282,212 + 409,322]) = 1,303,034

On January 1, a company issued 3%, 20year bonds with a face amount of $90 million for $58,795,340 to yield 6%. Interest is paid semiannually. What was the straightline interest expense on the December 31 annual income statement?

On January 1, a company issued 3%, 20year

bonds with a face amount of $90 million for $58,795,340 to

yield 6%. Interest is paid semiannually.

What was the straightline

interest expense on the December 31 annual income statement?

 (Enter your

answer in dollars not in millions. Round "PV Factor" to 5 decimal places and final answer to the

nearest dollar amount. Omit the "$" sign in your response.)

Interest expense for the year $ 4,260,234 ± 0.01%

Explanation:

Interest will be a plug figure:

$90,000,000 – 58,795,340 = $31,204,660 discount

$31,204,660 / 40 semiannual periods = $780,116 reduction each period

Date General Journal Debit Credit

June 30 Interest expense (to balance) 2,130,117

Discount on bonds payable (difference) 780,117

Cash (1.50% × $90,000,000) 1,350,000

Date General Journal Debit Credit

Dec. 31 Interest expense (to balance) 2,130,117

Discount on bonds payable (difference) 780,117

Cash (1.50% × $90,000,000) 1,350,000

Interest expense for the year: $2,130,117 + 2,130,117 = $4,260,234