Problem 14-2A Straight-Line: Amortization of bond discount LO P1, P2

Hillside issues $2,900,000 of 9%, 15-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $2,505,923.

Required:

1. Prepare the January 1, 2017, journal entry to record the bonds’ issuance.
2(a) For each semiannual period, complete the table below to calculate the cash payment.
2(b) For each semiannual period, complete the table below to calculate the straight-line discount amortization.
2(c) For each semiannual period, complete the table below to calculate the bond interest expense.
3. Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life.
4. Prepare the first two years of an amortization table using the straight-line method.
5. Prepare the journal entries to record the first two interest payments.

A.11.56%

B.5.24%

C.5.29%

D.10.53%

E.5.27%

You are an employee of University Consultants. Ltd., and have been given the following assignment. You are to present an investment analysis of a new small residential income producing property for sale to a potential investor. The asking price for the property is $1, 250,000; rents are estimated at $200,000 during the first year and are expected to grow at 3 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A 70 percent loan can be obtained at 11 percent interest for 30 years. The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold.

What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)?

What is the first-year debt coverage ratio?

What is the terminal capitalization rate?

What is the NPV using a 14% discount rate? What does this mean?

What is the profitability index using a 14% discount rate? What does this mean?

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

The selling price of the company’s product is $26 per unit. Management expects to collect 75% of sales in the quarter in which the sales are made, 20% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $73,600.

The company expects to start the first quarter with 2,540 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 20% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 2,740 units.

Required:

1-a. Compute the company’s total sales.

1-b. Complete the schedule of expected cash collections.

2. Prepare the company’s production budget for the upcoming fiscal year.

John purchased a house in Atlanta. He made no down payment so the principal of the mortgage equals to the price of the house: $234,000. The APR of his mortgage is 5%. The interest is compounded monthly. He made an agreement with the bank that he would pay off the mortgage in 30 years.

Six years later, the businessman did very well at his job. He saved enough money to make a $80,000 payment to the lender to get rid of the mortgage sooner. His salary doubled, which makes him able to afford higher monthly payments. Also, his risk gets lower so the lender charges him less interest now. He plans to pay off the mortgage in another six years.

In the spreadsheet,

1. Calculate the monthly payment of the first period. (5 pts)

2. Complete the amortization table of the first six years. (10 pts)

3. Calculate the starting balance and monthly payment of the second period. (5 pts)

4. Complete the amortization table of the second period. (10 pts)

A school district establishes a vehicle repair shop that provides service to other departments, all of which are accounted for in its general fund. During its first year of operations the shop engages in the fol-lowing transactions:

• It purchases equipment at a cost of $24 million and issues long-term notes for the purchase price. The useful life of the equipment is eight years, with no residual value.

• It purchases supplies at a cost of $4 million. Of these it uses $3 million. In its governmental funds, the district accounts for supplies on a purchases basis.

• It incurs $13 million in other operating costs.

• It bills other departments for $19 million.

For purposes of external reporting, school district officials are considering two options:

• Account for the vehicle repair shop in an internal service fund

• Account for the vehicle repair shop in the general fund

Please prepare the journal entries under the two assumptions. First assume the transactions are recorded in an internal service fund; and then assume the transactions are reported in the general fund.