Question
In: Accounting
On January 1, 2018, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June...
On January 1, 2018, Tennessee Harvester Corporation issued
debenture bonds that pay interest semiannually on June 30 and
December 31. Portions of the bond amortization schedule appear
below:
| Payment | Cash Payment |
Effective Interest |
Increase
in Balance |
Outstanding Balance |
|||||
| 6,256,164 | |||||||||
| 1 | 234,000 | 250,247 | 16,247 | 6,272,411 | |||||
| 2 | 234,000 | 250,896 | 16,896 | 6,289,307 | |||||
| 3 | 234,000 | 251,572 | 17,572 | 6,306,879 | |||||
| 4 | 234,000 | 252,275 | 18,275 | 6,325,154 | |||||
| 5 | 234,000 | 253,006 | 19,006 | 6,344,160 | |||||
| 6 | 234,000 | 253,766 | 19,766 | 6,363,926 | |||||
| ~ | ~ | ~ | ~ | ~ | |||||
| ~ | ~ | ~ | ~ | ~ | |||||
| ~ | ~ | ~ | ~ | ~ | |||||
| 38 | 234,000 | 303,342 | 69,342 | 7,652,885 | |||||
| 39 | 234,000 | 306,115 | 72,115 | 7,725,000 | |||||
| 40 | 234,000 | 309,000 | 75,000 | 7,800,000 | |||||
Required:
1. What is the face amount of the bonds?
2. What is the initial selling price of the
bonds?
3. What is the term to maturity in years?
4. Interest is determined by what approach?
5. What is the stated annual interest rate?
6. What is the effective annual interest
rate?
7. What is the total cash interest paid over the
term to maturity?
8. What is the total effective interest expense
recorded over the term to maturity?
Solutions
Expert Solution
1. Face amount of bond = $ 7,800,000 (Outstanding balance at the time of maturity )
2. Initial selling price of bonds = $ 6,256,164 ( Initial outstanding balance)
3. Term to maturity in years is 20 years ( 40 semiannual periods / 2)
4 .Interest is determined by Effective interest rate.
5. Stated annual interest rate =( Cash payment / Face amount of bond) * Number of semiannual period in a year
= ( $234,000 / 7,800,000) * 2
Stated annual interest rate = 0.06 or 6%
6. Effective annual interest rate = ( Effective interest / Outstanding balance) * Number of semiannual period in a year
= ($250,247 / 6,256,164 ) * 2
= 0.08 or 8%
7. Total cash interest paid over the term to maturity = Cash payment * Total number of periods
= $234,000 * 40
= $9,360,000
8. Total effective interest expense recorded over the term to maturity = Total cash interest paid + Amount of discount
= $9,360,000 + ($7,800,000 - 6,256,164)
= $9,360,000 + 1,543,836
= $10,903,836
ekkarill92 answered 1 year agoRelated Solutions
On January 1, 2018, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June...
On January 1, 2018, Tennessee Harvester Corporation issued
debenture bonds that pay interest semiannually on June 30 and
December 31. Portions of the bond amortization schedule appear
below:
Payment Cash Payment Effective Interest Increase in Balance
Outstanding Balance
6,286,574
1 370,000 377,194 7,194 6,293,768
2 370,000 377,626 7,626 6,301,394
3 370,000 378,084 8,084 6,309,478
4 370,000 378,569 8,569 6,318,047
5 370,000 379,083 9,083 6,327,130
6 370,000 379,628 9,628 6,336,758
~ ~ ~ ~ ~
~ ~ ~ ~ ~
~...
On January 1, 2018, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June...
On January 1, 2018, Tennessee Harvester Corporation issued
debenture bonds that pay interest semiannually on June 30 and
December 31. Portions of the bond amortization schedule appear
below:
Payment
Cash
Payment
Effective
Interest
Increase
in
Balance
Outstanding
Balance
5,774,920
1
216,000
230,997
14,997
5,789,917
2
216,000
231,597
15,597
5,805,514
3
216,000
232,221
16,221
5,821,735
4
216,000
232,869
16,869
5,838,604
5
216,000
233,544
17,544
5,856,148
6
216,000
234,246
18,246
5,874,394
~
~
~
~
~
~
~
~
~
~
~...
On January 1, 2018, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June...
On January 1, 2018, Tennessee Harvester Corporation issued
debenture bonds that pay interest semiannually on June 30 and
December 31. Portions of the bond amortization schedule appear
below:
Payment
Cash
Payment
Effective
Interest
Increase in Balance
Outstanding
Balance
6,627,273
1
320,000
331,364
11,364
6,638,637
2
320,000
331,932
11,932
6,650,569
3
320,000
332,528
12,528
6,663,097
4
320,000
333,155
13,155
6,676,252
5
320,000
333,813
13,813
6,690,065
6
320,000
334,503
14,503
6,704,568
~
~
~
~
~
~
~
~
~...
On January 1, 2016, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June...
On January 1, 2016, Tennessee Harvester Corporation issued
debenture bonds that pay interest semiannually on June 30 and
December 31. Portions of the bond amortization schedule appear
below:
Payment
Cash
Payment
Effective
Interest
Increase in
Balance
Outstanding
Balance
6,047,387
1
292,000
302,369
10,369
6,057,756
2
292,000
302,888
10,888
6,068,644
3
292,000
303,432
11,432
6,080,076
4
292,000
304,004
12,004
6,092,080...
On January 1, 2021, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June...
On January 1, 2021, Tennessee Harvester Corporation issued
debenture bonds that pay interest semiannually on June 30 and
December 31. Portions of the bond amortization schedule appear
below:
Payment
Cash
Payment
Effective
Interest
Increase in
Balance
Outstanding
Balance
7,041,478
1
340,000
352,074
12,074
7,053,552
2
340,000
352,678
12,678
7,066,230
3
340,000
353,311
13,311
7,079,541
4
340,000
353,977
13,977
7,093,518
5
340,000
354,676
14,676
7,108,194
6
340,000
355,410
15,410
7,123,604
~
~
~
~
~
~
~
~
~
~
~...
Problem 14-4 Bond amortization schedule [LO14-2] On January 1, 2018, Tennessee Harvester Corporation issued debenture bonds...
Problem 14-4 Bond amortization schedule [LO14-2]
On January 1, 2018, Tennessee Harvester Corporation issued
debenture bonds that pay interest semiannually on June 30 and
December 31. Portions of the bond amortization schedule appear
below:
Payment
Cash
Payment
Effective
Interest
Increase in
Balance
Outstanding
Balance
6,095,749
1
228,000
243,830
15,830
6,111,579
2
228,000
244,463
16,463
6,128,042
3
228,000
245,122
17,122
6,145,164
4
228,000
245,807
17,807
6,162,971
5
228,000
246,519
18,519
6,181,490
6
228,000
247,260
19,260
6,200,750
~
~
~
~
~...
Queen Energy Inc. issued bonds on January 1, 2020, that pay interest semiannually on June 30...
Queen Energy Inc. issued bonds on January 1, 2020, that pay
interest semiannually on June 30 and December 31. The par value of
the bonds is $140,000, the annual contract rate is 8%, and the
bonds mature in 10 years. (Use TABLE 14A.1 and TABLE 14A.2.)
(Use appropriate factor(s) from the tables
provided.)
Required:
a. For each of these three situations, determine
the issue price of the bonds. (Do not round intermediate
calculations. Round the final answers to the nearest...
Queen Energy Inc. issued bonds on January 1, 2020, that pay interest semiannually on June 30...
Queen Energy Inc. issued bonds on January 1, 2020, that pay
interest semiannually on June 30 and December 31. The par value of
the bonds is $310,000, the annual contract rate is 12%, and the
bonds mature in 10 years. (Use TABLE 14A.1 and TABLE 14A.2.)
(Use appropriate factor(s) from the tables
provided.)
Required:
a. For each of these three situations, determine
the issue price of the bonds.
1. 8%
2. 12%
3. 14%
b. For each of these three...
Taylor Company issued $100,000 of 13% bonds on January 1, 2016. The bonds pay interest semiannually...
Taylor Company issued $100,000 of 13% bonds on January 1, 2016.
The bonds pay interest semiannually on June 30 and December 31 and
are due December 31, 2018.
Required:
1.
Assume the company sells the
bonds for $102,458.71 to yield 12%. Prepare the journal entries to
record the sale of the bonds and each 2016 semiannual interest
payment and premium amortization, using the effective interest
method.
2.
Assume the company sells the
bonds for $97,616.71 to yield 14%. Prepare the...
On January 1, 2018, Vacation Destinations issues $22 million of bonds that pay interest semiannually on...
On January 1, 2018, Vacation Destinations issues $22 million of
bonds that pay interest semiannually on June 30 and December 31.
Portions of the bond amortization schedule appear below:
(1)
(2)
(3)
(4)
(5)
Date
Cash
Paid
for Interest
Interest
Expense
Increase
in
Carrying Value
Carrying
Value
1/1/2018
$20,569,127
6/30/2018
$880,000
$925,611
$45,611
20,614,738
12/31/2018
880,000
927,663
47,663
20,662,401
1. Were the bonds issued at face amount, a
discount, or a premium?
Face amount
Discount
Premium
2....
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