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Interest Rate Sell at
Issued at
CASE | Stated Interest Rate
Market Interest Rate
10% Stated Interest Rate ~ 10% Market Rate
Present value of principal to be received at maturity
$100,000 x PV of | due in 10 periods at 5%
$100,000 x 61391 (Table 1)* $ 61,391
Present value of interest to be received periodically
over the term of the bonds
$5,000 x PV of | due periodically for 10 periods at 5%
$5,000 x 7.72173 (Table 2)* 38,609
Present value of bonds $100,000
Appendix C Bonds selll at face valueCASE 2 Stated Interest Rate
Market Interest Rat
Stated Interest Rate — 8% Market Rate
Present value of principal to be received at maturity
$100,000 x 67556 (Table |) $ 67.556
Present value of interest to be received periodically
over the term of the bonds
$5,000 x 8.11090 (Table 2) 40,555
Present value of bonds $108,111
Bonds sell at a premium
CASE 3 Stated Interest Rate
Market Interest Rat
10% Stated Interest Rate ~ 12% Market Rate
Present value of principal to be received at maturity
$100,000 x .55839 (Table |) $55,839
Present value of interest to be received periodically
over the term of the bonds
$5,000 x 7.36009 (Table 2)
Present value of bonds
Bonds sell at a discountat 96 with interest payable semi-annually on July | and
January |.
Date of Issue
Jan. 1 Cash 96,000
Discount on Bonds Payable 4,000
Bonds Payable 100,000
‘Computation of Amortization — Straight-Line Method
Bond Discount
+ =| Amortization
$400
Interest Date
July | Interest Expense 5,400
Discount on Bonds Payable 400
Cash 5,000
($100,000 x .10 x 1/2 = $5,000)
Year-End Interest Accrual
Dec. 31 Interest Expense 5.400
Discount on Bonds Payable 400
Bond Interest Payable 5,000
Statement Presentation (12/31/02)
Long-term liabilities
Bonds payable 100,000
Less: Discount on bonds payable 3,200