Present Value of Bonds Payable; Premium Moss Co. issued $180,000 of five-year, 11% bonds, with interest...

Present Value of Bonds Payable; Premium Moss Co. issued $180,000 of five-year, 11% bonds, with interest payable semiannually, at a market (effective) interest rate of 10%. Determine the present value of the bonds payable, using the present value tables in Exhibit 5 and Exhibit 7. Round to the nearest dollar. $

Expert Solution

Present Value of Bonds Payable

$ 186,950

Working:

Present value of interest payments	$ 76,445
[$180,0005.5%7.721735 PV annuity factor (5%, 5 years, semi-annual bond)]
Present value of the face value	$ 110,504
[$180,000*0.613913 PV ordinary factor (5%, 5 years, semi-annual bond)]
Present Value of Bonds Payable	$ 186,950

Checking:

Schedule of Interest Expense and Bond Premium Amortization
Bond Payment Schedule
Date	Cash Payment	Interest Expense	Amortization of Premium	Carrying Amount
1st Year Beginning				$ 186,949.56
Year 1	$ 9,900.00	$ 9,347.48	$ 552.52	$ 186,397.04
Year 1	$ 9,900.00	$ 9,319.85	$ 580.15	$ 185,816.89
Year 2	$ 9,900.00	$ 9,290.84	$ 609.16	$ 185,207.74
Year 2	$ 9,900.00	$ 9,260.39	$ 639.61	$ 184,568.12
Year 3	$ 9,900.00	$ 9,228.41	$ 671.59	$ 183,896.53
Year 3	$ 9,900.00	$ 9,194.83	$ 705.17	$ 183,191.36
Year 4	$ 9,900.00	$ 9,159.57	$ 740.43	$ 182,450.92
Year 4	$ 9,900.00	$ 9,122.55	$ 777.45	$ 181,673.47
Year 5	$ 9,900.00	$ 9,083.67	$ 816.33	$ 180,857.14
Year 5	$ 9,900.00	$ 9,042.86	$ 857.14	$ 180,000.00

By the end of year 5 ,Carrying value is equal to face value.

ekkarill92 answered 2 years ago

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