Question
In: Accounting
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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