Grocery Corporation sold $500,000, 7 percent notes on January 1, 2014, at a mark
ID: 2457336 • Letter: G
Question
Grocery Corporation sold $500,000, 7 percent notes on January 1, 2014, at a market rate of 8 percent. The notes were dated January 1, 2014, with interest to be paid each December 31; they mature 10 years from January 1, 2014. Use effective-interest amortization
Show how the interest expense, interest payment, and notes payable should be reported on the financial statements for 2014. (Round your intermediate and final answers to the nearest dollar amount. Round time value factor to 4 decimal places.)
Show how the interest expense, interest payment, and notes payable should be reported on the financial statements for 2014. (Round your intermediate and final answers to the nearest dollar amount. Round time value factor to 4 decimal places.)
Explanation / Answer
Year Interest +Maturity Discount fator @8% PV Of cash flows Year 1 35,000 0.9259 32,407 Year 2 35,000 0.8573 30,007 Year 3 35,000 0.7938 27,784 Year 4 35,000 0.7350 25,726 Year 5 35,000 0.6806 23,820 Year 6 35,000 0.6302 22,056 Year 7 35,000 0.5835 20,422 Year 8 35,000 0.5403 18,909 Year 9 35,000 0.5002 17,509 Year 10 535,000 0.4632 247,809 Total 466,450 So Note face Value 500,000 Issue Price 466,450 Discount on Issue 33,550 Amortization Schedule Interest payable @7% Note Payable Interest expense @8% on BV Note dicount Cr Debit Bal in Note discount Note payable Cr Book Value Note Jan 1 2014. 33,550 500,000 466,450 Dec 31. 2014 35,000 37,316 2,316 31,234 500,000 468,766 Dec 31. 2015 35,000 37,501 2,501 28,733 500,000 471,267 Dec 31. 2016 35,000 37,701 2,701 26,032 500,000 473,968 Dec 31. 2017 35,000 37,917 2,917 23,114 500,000 476,886 Dec 31. 2018 35,000 38,151 3,151 19,964 500,000 480,036 Dec 31. 2019 35,000 38,403 3,403 16,561 500,000 483,439 Dec 31. 2020 35,000 38,675 3,675 12,885 500,000 487,115 Dec 31. 2021 35,000 38,969 3,969 8,916 500,000 491,084 Dec 31. 2022 35,000 39,287 4,287 4,630 500,000 495,370 Dec 31. 2023 35,000 39,630 4,630 0 500,000 500,000 So The amounts for 2014 financial statement Interest Expense 37,316 Interest Payment 35,000 Note Payable balance year end 500,000 Discount on Note Payable Dr Balance year end 31,234 Book Value Note 468,766
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