Eveready Company issued P100,000 of 8% term bonds on January 1, 2X19, due on January 1, 2X24, with interest payable on July 1 and January 1. The company’sinvestors are willing to accept the bond at an effective- interest rate of 6%. 1. What is the present value of P100,000 bonds due in five (5) years at 6% interest payable semiannually? 2. What is the present value of P 4,000 interest payable? 3. What amount would the investors pay for that particular bond? 4. What is the premium/discount at the date of issuance? 5. Provide entry in the books of Eveready on January 1, 2X19.
Eveready Company issued P100,000 of 8% term bonds on January 1, 2X19, due on January 1, 2X24, with interest payable on July 1 and January 1. The company’sinvestors are willing to accept the bond at an effective- interest rate of 6%. 1. What is the present value of P100,000 bonds due in five (5) years at 6% interest payable semiannually? 2. What is the present value of P 4,000 interest payable? 3. What amount would the investors pay for that particular bond? 4. What is the premium/discount at the date of issuance? 5. Provide entry in the books of Eveready on January 1, 2X19.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Question
100%
Eveready Company issued P100,000 of 8% term bonds on January 1, 2X19, due on January 1, 2X24, with
interest payable on July 1 and January 1. The company’sinvestors are willing to accept the bond at an effective-
interest rate of 6%.
1. What is the present value of P100,000 bonds due in five (5) years at 6% interest payable semiannually?
2. What is the present value of P 4,000 interest payable?
3. What amount would the investors pay for that particular bond?
4. What is the premium/discount at the date of issuance?
5. Provide entry in the books of Eveready on January 1, 2X19.
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