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40 bonds with a fa d of directors determ interest semiannual ht market rate is fou

40 bonds with a fa d of directors determ interest semiannual ht market rate is fou

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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## 7Bar Second Problem Bond Information: ### Overview 1. **Issue Details:** - 7Bar sells 40 bonds with a face value of $10,000 each on January 1, 2018. 2. **Bond Terms:** - The board of directors determines these bonds will have a 5-year life, have a stated rate of 18%, and pay interest semiannually. 3. **Market Conditions:** - The current market rate is found to be 20% on the date of sale. ### Calculation of Cash Proceeds To calculate the cash proceeds of the bond issuance, follow these steps: #### Step 1: Cash Payment of Interest This step involves determining the interest payments made to bondholders. #### Step 2: Present Values of Paid Amounts This step involves computing the present value of all payments made on the bonds to understand their cost and repayment schedule. ### Partial Repayment Schedule (Just the First 4 Periods) For educational purposes, the following table illustrates the partial repayment schedule over the first four periods of the bond's life. This includes the cash payment (PMT), interest expense, amortization (Amort.), discount, face value, and carrying value. | Date | Cash PMT | Interest Expense | Amort. | Discount | Face Value | Carrying Value | |-------------|----------|------------------|---------|----------|------------|----------------| | START | 1/1/2018 | | | | | | | Period #1 | 6/30/2018| | | | | | | Period #2 | 12/31/2018| | | | | | | Period #3 | 6/30/2019| | | | | | | Period #4 | 12/31/2019| | | | | | ### Explanation - **Cash PMT:** The cash payment made for each period. - **Interest Expense:** The amount of interest expense for each period. - **Amort.:** Amortization of any discount or premium. - **Discount:** Any discounts applied to the face value of the bonds. - **Face Value:** The face value of the bonds issued. - **Carrying Value:** The carrying value of the bonds after deduct
Transcribed Image Text:## 7Bar Second Problem Bond Information: ### Overview 1. **Issue Details:** - 7Bar sells 40 bonds with a face value of $10,000 each on January 1, 2018. 2. **Bond Terms:** - The board of directors determines these bonds will have a 5-year life, have a stated rate of 18%, and pay interest semiannually. 3. **Market Conditions:** - The current market rate is found to be 20% on the date of sale. ### Calculation of Cash Proceeds To calculate the cash proceeds of the bond issuance, follow these steps: #### Step 1: Cash Payment of Interest This step involves determining the interest payments made to bondholders. #### Step 2: Present Values of Paid Amounts This step involves computing the present value of all payments made on the bonds to understand their cost and repayment schedule. ### Partial Repayment Schedule (Just the First 4 Periods) For educational purposes, the following table illustrates the partial repayment schedule over the first four periods of the bond's life. This includes the cash payment (PMT), interest expense, amortization (Amort.), discount, face value, and carrying value. | Date | Cash PMT | Interest Expense | Amort. | Discount | Face Value | Carrying Value | |-------------|----------|------------------|---------|----------|------------|----------------| | START | 1/1/2018 | | | | | | | Period #1 | 6/30/2018| | | | | | | Period #2 | 12/31/2018| | | | | | | Period #3 | 6/30/2019| | | | | | | Period #4 | 12/31/2019| | | | | | ### Explanation - **Cash PMT:** The cash payment made for each period. - **Interest Expense:** The amount of interest expense for each period. - **Amort.:** Amortization of any discount or premium. - **Discount:** Any discounts applied to the face value of the bonds. - **Face Value:** The face value of the bonds issued. - **Carrying Value:** The carrying value of the bonds after deduct
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