1. On January 1, 2020, Ann Price loaned $223016 to Joe Kiger. A zero-interest-bearing note (face...

1. On January 1, 2020, Ann Price loaned $223016 to Joe Kiger. A zero-interest-bearing note (face amount, $305000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2022. The prevailing rate of interest for a loan of this type is 11%. The present value of $305000 at 11% for three years is $223016. What amount of interest income should Ms. Price recognize in 2020?

A. $24532

B. $33550

C. $100650

D. $82000

2. On January 1, 2021, Blossom Co. issued ten-year bonds with a face value of $6,100,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:

Present value of 1 for 10 periods at 10%		0.386
Present value of 1 for 10 periods at 12%		0.322
Present value of 1 for 20 periods at 5%		0.377
Present value of 1 for 20 periods at 6%		0.312
Present value of annuity for 10 periods at 10%		6.145
Present value of annuity for 10 periods at 12%		5.650
Present value of annuity for 20 periods at 5%		12.462
Present value of annuity for 20 periods at 6%		11.470

Calculate the issue price of the bonds

Issue price of bond:

Without prejudice to your solution in part (a), assume that the issue price was $5,392,400. Prepare the amortization table for 2021, assuming that amortization is recorded on interest payment dates using the effective-interest method.

Date	Cash	Expense	Amortization	Carrying Amount
1/1/18				$
6/30/18	$	$
12/31/18

Solutions

Expert Solution


Q.1	Correct Option A i.e. $24,532

	Interest Income = cash balance outstanding * rate of interest
	=223016*11%
	24,532


Q.2	Issue Price	5,401,550

	i) Determining the issue price

	Semiannual	Cash Flow	PV Factor 6%	Present Value
	1-20	305,000	11.47000	3,498,350
	20	6,100,000	0.31200	1,903,200

		Present Value /Issue price	5,401,550


Q.3	Date	Cash	Expense	Amortization	Carrying Amount
	01/01/18				5,392,000
	6/30/18	305,000	323,520	18,520	5,410,520
	12/31/18	305,000	324,631	19,631	5,430,151

ekkarill92 answered 1 year ago

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