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The Following Information Applies to Questions 21-25: Johnson Corporation plans to obtain financing with a $1,000,000...

The Following Information Applies to Questions 21-25:

Johnson Corporation plans to obtain financing with a $1,000,000 bond issue that has a term of 10 years. Payments will be made semi-annually.

21. If the bond (payment) rate is stated at 7%, and the bonds call for semi-annual payments, what is the amount of those payments?

a. $350,000

b. $700,000

c. $35,000

d. $70,000

22. Completely ignore number 21. Assume that the semi-annual cash payments have already been correctly computed to be $45,000. Given this number, and remembering that the face value of the bonds ($1,000,000) will be paid out at the end of the 10 years, what is the total issue price (present value) of the bonds if the market rate for bond issues of similar risk is 8%, compounded semi-annually? Choose from among the following factors in making your computations. (PVS=Present Value Single, and PVA=Present Value Annuity):

PVS:                         4%      8%                                         PVA:                        4%       8%

10 periods             .676        .463                                        10 periods             8.111      6.710

20 periods             .456        .215                                        20 periods             13.59      9.818

a. $456,000

b. $611,550

c. $764,950

d. $1,067,550

23. Completely ignore numbers 21 and 22. Assume that the market rate for bond issues of similar risk is 6%, compounded semi-annually, and that the total issue price for these bonds has already been correctly calculated to be $1,149,120. Given this number, and the market rate of interest, how much interest expense will accrue and be recorded at the end of the first 6 month period?

a. $60,000.00

b. $68,947.20

c. $30,000.00

d. $34,473.60

24. Completely ignore numbers 21 - 23. Assume that the semi-annual cash payments on the bonds are $50,000, and that the accrued interest on the bonds for the first 6 month period is only $48,700. The carrying value of the bonds will change by an amount of:

a. cannot be determined from the information given

b. $1,300 increase

c. $1,300 decrease

25. Completely ignore numbers 21-24. Assume the total issue price for these bonds has already been correctly calculated to be $1,020,000, and that the semi-annual cash payment made at the end of the first 6 month period exceeds the accrued interest expense for the period by $2,700. What is the new carrying value of the bonds?

a. $1,047,000

b. $993,000

c. $1,017, 300

d. $1,022,700

Solutions

Expert Solution

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

ekkarill92 answered 2 years ago
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