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144) Calculate the cash proceeds from the following issuances of bonds. All situations are independent of...

144) Calculate the cash proceeds from the following issuances of bonds. All situations are independent of each other and all the bond issuances pay interest annually.

Note: present value tables required.

a) $100,000, five-year, 10% bonds issued when the market rate is 8% b)$50,000, 10-year, 8% bonds issued when the market rate is 12% c) $200,000, 10-year, 9% bonds issued when the market rate is $12% d) $100,000, five-year, 12% bonds issued when the market rate is 8%

145) Warren Corporation signs an agreement on January 2, 2010, to lease delivery equipment for a five-year period. The current market value of the delivery equipment on January 2, 2010, is $225,000. The lease agreement calls for annual payments of $50,040. The first payment is made on January 2, 2010, all other payments are made on December 31 of each year. The lease agreement calls for an 8% interest rate. The estimated remaining life of the delivery equipment is six years. Ownership of the delivery equipment will transfer to Warren Corporation at the end of the lease term.

Note: present value tables required.

a) Prepare the journal entry on January 2, 2010, to record the lease agreement and make the first lease payment. b) Prepare the entry on December 31, 2010, to record the second lease payment and the accrual of interest.

Solutions

Expert Solution

Question contains multiple Questions(144 and 145) answered for the First only

Solution 144;-

a)  $100,000, five-year, 10% bonds issued when the market rate is 8%

Cash proceeds for the bond is $107985 which is present value of the Face value of the bond at the end of 5th year and present value of interest thereon payable annually discounted at market rate of 8%.

year Particulars Pv factor @ 8% PV Working
1 $    10,000.00 0.9259 $            9,259 Interest payment (annual) 100000*10%
2 $    10,000.00 0.8573 $            8,573 $    10,000.00
3 $    10,000.00 0.7938 $            7,938 Bond repayable at end of 5th year $ 100,000.00
4 $    10,000.00 0.7350 $            7,350
5 $    10,000.00 0.6806 $            6,806 Journal dr cr
5 $ 100,000.00 0.6806 $          68,058 cash $        107,985
Present Value/ cash proceeds $        107,985          To Bond payable $ 100,000
         To premium on bond $      7,985

b)$50,000, 10-year, 8% bonds issued when the market rate is 12%

Cash Proceeds is $ 38700

year Particulars Pv factor @ 12% PV Working
1 $      4,000.00 0.8929 $            3,571 Interest payment (annual) 50000*8%
2 $      4,000.00 0.7972 $            3,189 $      4,000.00
3 $      4,000.00 0.7118 $            2,847 Bond repayable at end of 5th year $    50,000.00
4 $      4,000.00 0.6355 $            2,542
5 $      4,000.00 0.5674 $            2,270 Journal dr cr
6 $      4,000.00 0.5066 $            2,027 cash $          38,700
7 $      4,000.00 0.4523 $            1,809 Discount on bound $          11,300
8 $      4,000.00 0.4039 $            1,616          To Bond payable $    50,000
9 $      4,000.00 0.3606 $            1,442
10 $      4,000.00 0.3220 $            1,288
10 $    50,000.00 0.3220 $          16,099
Present Value/ cash proceeds $          38,700

c) $200,000, 10-year, 9% bonds issued when the market rate is $12%

Cash Proceeds is $166099

year Particulars Pv factor @ 12% PV Working
1 $    18,000.00 0.8929 $          16,071 Interest payment (annual) 200000*9%
2 $    18,000.00 0.7972 $          14,349 $    18,000.00
3 $    18,000.00 0.7118 $          12,812 Bond repayable at end of 5th year $ 200,000.00
4 $    18,000.00 0.6355 $          11,439
5 $    18,000.00 0.5674 $          10,214 Journal dr cr
6 $    18,000.00 0.5066 $            9,119 cash $        166,099
7 $    18,000.00 0.4523 $            8,142 Discount on bound $          33,901
8 $    18,000.00 0.4039 $            7,270          To Bond payable $ 200,000
9 $    18,000.00 0.3606 $            6,491
10 $    18,000.00 0.3220 $            5,796
10 $ 200,000.00 0.3220 $          64,395
Present Value/ cash proceeds $        166,099

d) $100,000, five-year, 12% bonds issued when the market rate is 8%

Cash Proceeds is $ 115971

year Particulars Pv factor @ 8% PV Working
1 $    12,000.00 0.9259 $          11,111 Interest payment (annual) 100000*12%
2 $    12,000.00 0.8573 $          10,288 $    12,000.00
3 $    12,000.00 0.7938 $            9,526 Bond repayable at end of 5th year $ 100,000.00
4 $    12,000.00 0.7350 $            8,820
5 $    12,000.00 0.6806 $            8,167 Journal dr cr
5 $ 100,000.00 0.6806 $          68,058 cash $        115,971
Present Value/ cash proceeds $        115,971          To Bond payable $ 100,000
         To premium on bond $    15,971

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