Question

E14-11.  

(Information Related to Various Bond Issues)

(LO 1) Karen Austin Inc. has issued three types of debt on January 1, 2017, the start of the company's fiscal year.

(a)$10 million, 10-year, 15% unsecured bonds, interest payable quarterly. Bonds were priced to yield 12%.

(b)$25 million par of 10-year, zero-coupon bonds at a price to yield 12% per year.

(c)$20 million, 10-year, 10% mortgage bonds, interest payable annually to yield 12%.

Instructions

Prepare a schedule that identifies the following items for each bond: (1) maturity value, (2) number of interest periods over life of bond, (3) stated rate per each interest period, (4) effective-interest rate per each interest period, (5) payment amount per period, and (6) present value of bonds at date of issue.

Answer 1

		Unsecured Bonds	Zero-Coupon Bonds	Mortgage Bonds
1	Maturity Value	10,000,000.00	25,000,000.00	20,000,000.00
2	Number of Interest Period	40	10	10
		(10 Years X 4)
3	Stated Rate per period	3.75%	0.00%	10.00%
		(15% / 4)
4	Effective Rate Per Period	3%	0%	12%
		(12% / 4)
5	Payment Amount per Period	375,000.00	-	2,000,000.00
		($10,000,000 X 3.75%)	($25,000,000 X 0%)	($20,000,000 X 10%)
6	Present Value	11,733,639.00	8,049,250.00	17,739,840.00
		($10,000,000 X 0.30656 + $375,000 X 23.11477)	($25,000,000 X 0.32197)	($20,000,000 X 0.32197 + $2,000,000 X 5.65022)