Explanation Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations. Bond Premium: It occurs when the bonds are issued at a high price than the face value. Effective-interest method of amortization: It is an amortization model that apportions the amount of bond discount or premium based on the market interest rate. Present Value: The value of today’s amount expected to be paid or received in the future at a compound interest rate is called as present value. Determine the issuance price of the bonds. Step 1: Calculate the cash interest payment for bonds. Cash interest payment = Face value × Coupon rate × Interest time period = $ 500 , 000 × 10 % × 1 2 = $ 25 , 000 Step 2: Calculate the present value of cash interest payment. Particulars Amount Interest payment (a) $25,000 PV factor at annual market interest rate of 4% for 20 periods (b) 13.59033 Present value ( a ) × ( b ) $339,758 Table (1) Note: The present value factor for 20 periods at 4% interest would be 13

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GB 112/212 MANAGERIAL ACC. W/ACCESS >C<

Ch. 10 - From the perspective of the issuer, what are some...Ch. 10 - What are the primary characteristics of a bond?...Ch. 10 - Prob. 3Q Ch. 10 - Differentiate between a bond indenture and a bond...Ch. 10 - Prob. 5Q Ch. 10 - Prob. 6Q Ch. 10 - Prob. 7Q Ch. 10 - Prob. 8Q Ch. 10 - What is the book value of a bond?Ch. 10 - Prob. 10Q

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