Hello, This is now the third time that i send this question because the answers
ID: 2473057 • Letter: H
Question
Hello, This is now the third time that i send this question because the answers given to me are wrong. PLEASE SEND ME ACCURATE ANSWERS!!!!!
The first time I send it, the rates were wrong, and the second time I sent it, one of the balance did not match the one given in the book, they changed the 3rd balance ($48,683)!
MBTA Corporation issued bonds and received cash in full for the issue price. The bonds were dated and issued on January 1, 2014. The stated interest rate was payable at the end of each year. The bonds mature at the end of four years.
The following schedule has been completed (amounts in thousands):
Date 1 January 2014 Cash N/A Interest N/A Amortization N/A Balance $49,148
end of 2014 Cash $3,660 Interest $3,431 Amort. $229 Balance $48,919
end of 2015 Cash $3,660 Interest ?? Amort. ?? Balance $48,683
end of 2016 Cash $3,660 Interest ?? Amort. ?? Balance ??
end of 2017 Cash $3,660 Interest ?? Amort.?? Balance $48,000
Required: 1) Complete the amortization schedule.
2) What was the maturity amount of the bonds?
3) How much cash was received at the date of issuance (sale) of the bonds?
4) Was there a premium or a discount? If so, which and how much?
5) How much cash will be disbursed for interest each period and in total for the full life of the bond issue?
6) What method of amortization is being used? Explain.
7) What is the stated rate of interest?
8) What is the effective rate of interest?
9) What amount of interest expense should be reported on the income statement each year?
10) Show how the bonds should be reported on the balance sheet at the end of each year (show the last year immediately before retirement of the bonds).
Explanation / Answer
Answer for question no.1:
Answer for question no.2:
Maturity amount of the bond=$48,000
Answer for question no.3:
Amount received on the date of issue as given in the table is nothing but the amount mentioned at the beginning of 2014 i.e., $49,148.
Answer for question no.4:
Amount received on the bond issue=$49,148.
Bond balance at the end of 2017 =$48,000 after ammortization.
Therefore the bonds are issued at premium =$49,148 - $48,000
=$1,148.
Answer for question no.5:
Cash disbursed is calculated in the amortization table =$14,640.
Answer for question no.6:
Method of amortization being used is effective interest method. This is because the bond premium being amortized is not same every year.
Answer for question no.7:
Stated rate of interest = cash payment made as interest/Face value of the bond
=3660/48000*100
=7.63%.
Answer for question no.8:
Effective rate of interest as calculated in the first question =6.9202%
Answer for question no.9:
Interst expense that should be reported each year is as follows:
Date Cash(A) Interest(B) = Previous year balance*6.9202% amort (C ) = A-B Balance (D)=Previous year D-(C ) Calculation of effective interest First January 2014 $0.00 $49,148.00 Balance at the end of the year * 6.9202% is the market rate End of 2014 $3,660.00 $3,401.14 $258.86 $48,889.14 49148*6.9202% End of 2015 $3,660.00 $3,383.23 $276.77 $48,612.37 48889.14*6.9202% End of 2016 $3,660.00 $3,364.07 $295.93 $48,316.44 48612.37*6.9202% End of 2017 $3,660.00 $3,343.59 $316.41 $48,000.03 48316.44*6.9202% Total $14,640.00 $13,492.03 $1,147.97Related Questions
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