EX-9A On March 1, 2011, Fefferman Inc. issued a $400,000, 8%, three-year semi-an

Question

EX-9A On March 1, 2011, Fefferman Inc. issued a $400,000, 8%, three-year semi-annually beginning September 1, 2011 bond. Interest is payable Required Part 1 ulate the issue priassu a market in ate of 796 te of i ethod, pare an ag izat arch 1 c. Re int entry for tuance of the t of est on Septem1, 201egd Mar1,2012 Part 2 a. Calculate the bond issue price assuming a market interest rate of 8.5% on the date of issue b. Using the effective interest method, prepare an amortization schedule c. Record the entries for the issuance of the bond on Marc h 1 and the of interest on September 1, 2011 and March 1, 2012

Explanation / Answer

1-

semiannual period

present value of cash inflow = cash inflow/(1+r)^n r = 8.5/2 = 4.25%

1

16000

15347.72

2

16000

14722.04

3

16000

14121.86

4

16000

13546.15

5

16000

12993.9

6

416000

324068.6

value of bond

sum of present value of cash flow

394800

2-

Amortization table

semiannual period

cash paid =400000*4%

Interest expense = carrying value*4.25%

amortization of discount = interest expense-cash paid

carrying value of discount on bond payable = carrying value ofdiscount on bonds payable-discount on bonds payable amortized

bond payable

carrying value of bond = bonds payable-carrying value of bond to be amortized

Mar 1 2011

5200

400000

394800

sep 1 2011

16000

16779.01

779.0111

4421

400000

395579

march 1 2012

16000

16812.12

812.119

3609

400000

396391

sep 1 2012

16000

16846.63

846.6341

2762

400000

397238

march 1 2013

16000

16882.62

882.616

1879

400000

398121

sep 1 2013

16000

16920.13

920.1272

959

400000

399041

march 1 2014

16000

16959.23

959.2326

0

400000

400000

3-

date

explanation

debit

credit

march 1 2011

cash

394800

discount on bonds payable

5200

bonds payable

400000

sep 1 2011

interest expense

16779.01

cash

16000

discount on bonds payable

779.0111

dec 31 2011

interest expense

8406.06

accrued interest income

8000

discount on bonds payable

406.0595

march 1 2012

interest expense

8406.06

accrued interest income

8000

cash

16000

discount on bonds payable

406.0595

1-

semiannual period

present value of cash inflow = cash inflow/(1+r)^n r = 8.5/2 = 4.25%

1

16000

15347.72

2

16000

14722.04

3

16000

14121.86

4

16000

13546.15

5

16000

12993.9

6

416000

324068.6

value of bond

sum of present value of cash flow

394800

2-

Amortization table

semiannual period

cash paid =400000*4%

Interest expense = carrying value*4.25%

amortization of discount = interest expense-cash paid

carrying value of discount on bond payable = carrying value ofdiscount on bonds payable-discount on bonds payable amortized

bond payable

carrying value of bond = bonds payable-carrying value of bond to be amortized

Mar 1 2011

5200

400000

394800

sep 1 2011

16000

16779.01

779.0111

4421

400000

395579

march 1 2012

16000

16812.12

812.119

3609

400000

396391

sep 1 2012

16000

16846.63

846.6341

2762

400000

397238

march 1 2013

16000

16882.62

882.616

1879

400000

398121

sep 1 2013

16000

16920.13

920.1272

959

400000

399041

march 1 2014

16000

16959.23

959.2326

0

400000

400000

3-

date

explanation

debit

credit

march 1 2011

cash

394800

discount on bonds payable

5200

bonds payable

400000

sep 1 2011

interest expense

16779.01

cash

16000

discount on bonds payable

779.0111

dec 31 2011

interest expense

8406.06

accrued interest income

8000

discount on bonds payable

406.0595

march 1 2012

interest expense

8406.06

accrued interest income

8000

cash

16000

discount on bonds payable

406.0595

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.