Question

Analyzing and Reporting Financial Statement Effects of Bond Transactions On January 1, 2012, Trueman Corporation issued $400,000 of 20-year, 11% bonds for $369,908, yielding a market (yield) rate of 12%. Interest is payable semiannually on June 30 and December 31. (a) Confirm the bond issue price. Use Excel or a financial calculator to computer your answers. Round your answers to the nearest whole number. Present value of principal repayment $ Answer Present value of interest payments $ Answer Selling price of bonds $ 369,908 (b) Indicate the financial statement effects using the template for (1) bond issuance, (2) semiannual interest payment and discount amortization on June 30, 2012, and (3) semiannual interest payment and discount amortization on December 31, 2012. Round answers to nearest whole number. Use negative signs with answers, when appropriate. Balance Sheet Transaction Cash Asset + Noncash Assets = Liabilities + Contributed Capital + Earned Capital (1) Answer Answer Answer Answer Answer (2) Answer Answer Answer Answer Answer (3) Answer Answer Answer Answer Answer Income Statement Revenue - Expenses = Net Income Answer Answer Answer Answer Answer Answer Answer Answer Answer

Answer 1

a)

Rate = 12%/2 = 6%

nper = 20 year * 2 = 40 periods

pmt = ($400000*11%)/2 = 22000

Particulars	Formula in Excel	Computation in Financial Excel	Result
PV of Principal Repayment	PV(rate,nper,pmt,fv,type)	PV(6%,40,0,400000,0)	$38889
PV of Interest Payments	PV(rate,nper,pmt,fv,type)	PV(6%,40,22000,0,0)	$331018
Selling Price of Bonds		Total Issue Price	$369907

b) Balance Sheet:-

Transaction	Cash asste	Noncash Assets	=	Liabilities	Contributed Capital	Earned Capital
1	369907	0		369907	0	0
2	(22000)	(194.42)		0	0	(22194.42)
3	(22000)	(206.09)		0	0	(22206.09)

Transaction :-

2). Interest Expenses = $369907*6% = $22194.42

Discount Amortization = Interest Expense - Interest Payament

= $22194.42 - $22000

= $194.42

3) Interest Expenses = ($369907+$194.42)*6% = $22206.09

Discount Amortization = Interest Expense - Interest Payament

= $22206.09 - $22000

= 206.09

Income Statement :-

Transaction	Revenue	-	Expenses	=	Net Income
1	0		0		0
2	0		22194.42		(22194.42)
3	0		22206.09		(22206.09)