On January 1, 2021, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below: Cash Effective Increase in Outstanding Payment Payment Interest Balance Balance 5,802,315 1 332,000 348,139 16,139 5,818,454 2 332,000 349,107 17,107 5,835,561 3 332,000 350,134 18,134 5,853,695 4 332,000 351,222 19,222 5,872,917 5 332,000 352,375 20,375 5,893,292 6 332,000 353,598 21,598 5,914,890 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~` ~ ~ ~ 38 332,000 471,377 139,377 7,995,654 39 332,000 479,739 147,739 8,143,393 40 332,000 488,607 156,607 8300,000 Required: 1 What is the face amount of the bonds? 2 What is the initial selling price of the bonds? 3 What is the term to maturity in years? 4 Interest is determined by what approach? 5 What is the stated annual interest rate? 6 What is the effective annual interest rate? 7 What is the total cash interest paid over the term to maturity? 8 What is the total effective interest expense recorded over the term to maturity?
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
On January 1, 2021, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below:
Cash Effective Increase in Outstanding
Payment Payment Interest Balance Balance
5,802,315
1 332,000 348,139 16,139 5,818,454
2 332,000 349,107 17,107 5,835,561
3 332,000 350,134 18,134 5,853,695
4 332,000 351,222 19,222 5,872,917
5 332,000 352,375 20,375 5,893,292
6 332,000 353,598 21,598 5,914,890
~ ~ ~ ~ ~
~ ~ ~ ~ ~
~ ~` ~ ~ ~
38 332,000 471,377 139,377 7,995,654
39 332,000 479,739 147,739 8,143,393
40 332,000 488,607 156,607 8300,000
Required:
1 What is the face amount of the bonds?
2 What is the initial selling price of the bonds?
3 What is the term to maturity in years?
4 Interest is determined by what approach?
5 What is the stated annual interest rate?
6 What is the effective annual interest rate?
7 What is the total cash interest paid over the term to maturity?
8 What is the total effective interest expense recorded over the term to maturity?
1 Face amount __________________________
2 Initial selling price __________________________
3 Term to maturity __________________________ years
4 Interest is determined by what approach? __________________________
5 Annual interest rate __________________________ %
6 Effective annual interest rate __________________________ %
7 Total cash interest paid __________________________
8 Effective interest expense __________________________
Bond :— It is one of the type of securities that pays fixed periodic interest and face value amount at the end of maturity term to their investors.
Period Cash interest paid :— It is calculated by multiplying periodic stated or coupon interest rate with face value of bond.
Effective interest expense of particular period:- It is calculated by multiplying beginning carrying value of bond of particular period with periodic market or effective or yield interest rate.
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