Question

 

On December 31, 20X4, Arnold, Inc., issued $200,000, 8% serial bonds, to be repaid in the amount of $40,000 each year. Interest is payable annually on December 31. The bonds were issued to yield 10% a year. The bond proceeds were $190,280 based on the present values at December 31, 20X4, of the five annual payments as follows:

	Amounts Due
Due Date	Principle	Interest	Present Value at 12/31/X4
12/31/X5	$40,000	$16,000	$50,900
12/31/X6	$40,000	$12,800	$43,610
12/31/X7	$40,000	$9,600	$37,250
12/31/X8	$40,000	$6,400	$31,690
12/31/X9	$40,000	$3,200	$26,830
			$190,280

Answer 1

	Due Date	Principle - A	Interest -B	Total C= A+B	Present value factor @ 10%    - D	Present Value at 31-12-2004    ( C X D ) *
	31-12-2005	40,000	16,000	56,000	0.909091	50,909
	31-12-2006	40,000	12,800	52,800	0.826446	43,636
	31-12-2007	40,000	9,600	49,600	0.751315	37,265
	31-12-2008	40,000	6,400	46,400	0.683013	31,692
	31-12-2009	40,000	3,200	43,200	0.620921	26,824
	Total	200,000	48,000	248,000		190,326
	* In question , present value has been rounded off but in working it will differ little bit.