2. When the bonds mature at the end of Year 4, what amount of principal will Oli

Question

2. When the bonds mature at the end of Year 4, what amount of principal will Olive pay investors?

3. How much cash was received on the day the bonds were issued (sold)?

4. Were the bonds issued at a premium or a discount? If so, what was the amount of the premium or discount?

5. How much cash will be disbursed for interest each period and in total over the life of the bonds? Cash disbursed per period? Cash disbursed in total?

6. What is the coupon rate? (Enter your answer as a percentage rounded to 1 decimal place (i.e. 0.123 should be entered as 12.3).)

7. What was the annual market rate of interest on the date the bonds were issued?

8. What amount of interest expense will be reported on the income statement for Year 2 and Year 3?

9. What amount will be reported on the balance sheet at the end of Year 2 and Year 3?

P10-10 Preparing a Bond Amortization Schedule for a Bond Issued ata Premium L010-5 The fasowing information applies to the questions aisplayed below On January 1 of this yeer, Clive Corporation issued bonds. Interest is payable once e year an December 31. The bonds mature at the end of four yeers. Olive uses the effective-interest amartization method. The pertielly completed amortization schedule below pertains to the bonds: Date January 1, Yoar End of Year $3,040 $2,898 End of Year 2 End of Year 3 End of Year 4 Cash Interest Amertizetion Balence $33,636 33,494 38,341 $142 164 2,863 38,000 References Section Break P1O-10 Preparing a Bond Amortization Schedule for a Bond Issued at a Premium LO10-5 5 P10-10 Part 1 Required: 1-Complete the amortization schedule.(Enter all your values in positive. Round your final answers to nearest whole dollar amount.) oar End of Year 1 End of Year 2 End of Year 3 End of Year 4 5 38,636 94 38,341 898 142 863

Explanation / Answer

1.

2. When the bonds mature at the end of Year 4, what amount of principal will Olive pay investors?

$38,000

3. How much cash was received on the day the bonds were issued (sold)?

$38,636

4. Were the bonds issued at a premium or a discount? If so, what was the amount of the premium or discount?

The bonds were sold at a premium. Premium amount- $636

5. How much cash will be disbursed for interest each period and in total over the life of the bonds? Cash disbursed per period? Cash disbursed in total?

Cash disbursed per period = 3040

Cash disbursed in total = 3040*4= $12,160

6. What is the coupon rate?

Coupon rate is 8%

7. What was the annual market rate of interest on the date the bonds were issued?

Annual market rate = 2898/38636 = 7.5%

8. What amount of interest expense will be reported on the income statement for Year 2 and Year 3?

9. What amount will be reported on the balance sheet at the end of Year 2 and Year 3?

Date Cash Interest Amortization balance Jan 1 Year 1 38636 End of year 1 3040 2898 142 38494 End of year 2 3040 2887 153 38341 End of year 3 3040 2876 164 38177 End of year 4 3040 2863 177 38000

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