Question

In: Accounting

Auerbach Inc. issued 5% bonds on October 1, 2018. The bonds have a maturity date of...

Auerbach Inc. issued 5% bonds on October 1, 2018. The bonds have a maturity date of September 30, 2028 and a face value of $2,000,000. The bonds pay interest each March 31 and September 30, starting on 3/31/19 and finishing at maturity. The effective interest rate established by the market is 6% annually at the date of issue. How much did Auerbach receive from the bond issue on 10/1/2018?

Solutions

Expert Solution

Coupon Rate per period 2.5%
Period 20
Effective/Market rate per period 3.0%
Bond amount $2,000,000
Period Cashflows Present value Calculation
1 $50,000 $48,544 (50000/(1+0.03)^1)
2 $50,000 $47,130 (50000/(1+0.03)^2)
3 $50,000 $45,757 (50000/(1+0.03)^3)
4 $50,000 $44,424 (50000/(1+0.03)^4)
5 $50,000 $43,130 (50000/(1+0.03)^5)
6 $50,000 $41,874 (50000/(1+0.03)^6)
7 $50,000 $40,655 (50000/(1+0.03)^7)
8 $50,000 $39,470 (50000/(1+0.03)^8)
9 $50,000 $38,321 (50000/(1+0.03)^9)
10 $50,000 $37,205 (50000/(1+0.03)^10)
11 $50,000 $36,121 (50000/(1+0.03)^11)
12 $50,000 $35,069 (50000/(1+0.03)^12)
13 $50,000 $34,048 (50000/(1+0.03)^13)
14 $50,000 $33,056 (50000/(1+0.03)^14)
15 $50,000 $32,093 (50000/(1+0.03)^15)
16 $50,000 $31,158 (50000/(1+0.03)^16)
17 $50,000 $30,251 (50000/(1+0.03)^17)
18 $50,000 $29,370 (50000/(1+0.03)^18)
19 $50,000 $28,514 (50000/(1+0.03)^19)
20 $2,050,000 $1,135,035 (2050000/(1+0.03)^20)
$1,851,225
Received from Bond issue $1,851,225

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

On the 1st October 2016, K.J Limited issued bonds with a maturity date of 1st October...
On the 1st October 2016, K.J Limited issued bonds with a maturity date of 1st October 2028. One K.J bond has a face value of $100,000 and the coupon rate is 4.50% p.a. with interest payable half-yearly. Assuming the market yield is 6% p.a. calculate the value of one bond: (a) on the 1st October 2020. (b) five years before maturity. (c) one year before maturity. Please do NOT use excel. Please calculate using formulas. Please show detailed calculations &...
3. Yıldırım A.Ş. On 1 October 2018, it issued bonds with a maturity of 200,000 TL...
3. Yıldırım A.Ş. On 1 October 2018, it issued bonds with a maturity of 200,000 TL and a 2-year maturity of 12%. All of the bonds were sold at nominal value. Interest payments will be made annually (30 September 2019, 30 September 2020). REQUESTED:                                                                                                           20 points Write the balances of the accounts related to this transaction as of 31.12.2018 and 31.12.2019 in the table below. HPP.   ACCOUNT NAME BALANCES NO 2018 2019                                                                                                            DEBT          DUE          DEBT                  DUE 300 Bank Loans...
Holden Company issued the following bonds: Issue date – January 1, 2015. Maturity date – January...
Holden Company issued the following bonds: Issue date – January 1, 2015. Maturity date – January 1, 2020. Par value – $100,000. Market interest rate at time of issue – 10% annually. Stated interest rate – 9%. Issue price – $96,149. Interest paid – 4.5% semiannually, first on July 1, 2015. Assume Dec. 31 is the fiscal year-end. a. Prepare the journal entry to record the issuance of the bonds on Jan. 1, 2015. b. Prepare the journal entries to...
II. On October 1, 2018, Raven Company issued $400,000 par value bonds dated July 1, 2018....
II. On October 1, 2018, Raven Company issued $400,000 par value bonds dated July 1, 2018. The 10-year bonds have a stated rate of 10%   and pay interest semiannually on January 1 and July 1. The bonds are issued at $454,200 plus accrued interest, and yield 8%. The effective interest method is used.    Required: Prepare the journal entry at the date the bond are issued. Prepare the adjusting entry at December 31, 2018. Prepare the entry for interest payment on...
On July 1, 2018, Kirby, Inc. issued $3,000,000, 6%, 5-year bonds at a price of 98....
On July 1, 2018, Kirby, Inc. issued $3,000,000, 6%, 5-year bonds at a price of 98. Interest is payable semiannually on January 1 and July 1. The bonds are callable at 102. Kirby uses straight-line amortization. On January 1, 2020, Kirby paid interest and recorded amortization on all of the bonds, and purchased the entire issue at the call price. Prepare journal entries to record: The issue of the bonds on July 1, 2018. The payment of interest and amortization...
On October 1st, 2018, Franklin Corporation issued $2 million of 13.5% bonds for $1,970,143.36. The bonds...
On October 1st, 2018, Franklin Corporation issued $2 million of 13.5% bonds for $1,970,143.36. The bonds are due in 4 years, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Use the spreadsheet included in the module section to prepare a bond interest expense and discount amortization schedule using the straight-line method. Use the same spreadsheet to prepare a bond interest expense and discount amortization schedule using the effective interest method. Prepare...
On October 1st, 2018, Franklin Corporation issued $2 million of 13.5% bonds for $1,970,143.36. The bonds...
On October 1st, 2018, Franklin Corporation issued $2 million of 13.5% bonds for $1,970,143.36. The bonds are due in 4 years, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Use the spreadsheet included in the module section to prepare a bond interest expense and discount amortization schedule using the straight-line method. Use the same spreadsheet to prepare a bond interest expense and discount amortization schedule using the effective interest method. Prepare...
  On March 1, 2018, Greenway Corporation issued 5% bonds dated January 1, 2018 with a par...
  On March 1, 2018, Greenway Corporation issued 5% bonds dated January 1, 2018 with a par value of $1,000,000. The bonds were sold for the present value of the bonds on March 1, 2018 plus two-month accrued interest. The bonds mature on December 31, 2023. Interest is paid semiannually on Jun 30 and December 31. Greenway's fiscal year ends on December 31 each year. The effective interest rate is 7%. ​​ ​Required: a. Determine the present value the bonds on...
On October 1, 2016, Indigo Corp. issued $960,000, 5%, 10-year bonds at face value. The bonds...
On October 1, 2016, Indigo Corp. issued $960,000, 5%, 10-year bonds at face value. The bonds were dated October 1, 2016, and pay interest annually on October 1. Financial statements are prepared annually on December 31. Prepare the journal entry to record the issuance of the bonds. Prepare the adjusting entry to record the accrual of interest on December 31, 2016. Show the balance sheet presentation of bonds payable and bond interest payable on December 31, 2016. Prepare the journal...
On October 1, 2021, Sarasota Corp. issued $888,000, 5%, 10-year bonds at face value. The bonds...
On October 1, 2021, Sarasota Corp. issued $888,000, 5%, 10-year bonds at face value. The bonds were dated October 1, 2021, and pay interest annually on October 1. Financial statements are prepared annually on December 31. Prepare the journal entry to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Oct. 1, 2021 enter an account title for the journal entry on...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT