14-12 Mont Co. is considering a $400,000 loan for a project.
It presently has total liabilities of $200,000 and total assets of $600,000. 1. Compute Montclairs (a) present debt-to-equity ratio and (b) the debt-to-equity ratio assuming it borrows $400,000 to fund the project.
14-13 Stanford issues bonds dated 1/1/2017 with a par value of $400,000.
The bonds rate is 9% and interest is paid semiannually on June 30 and December 31.
The bonds mature in three years.
The annual market rate at the date of issuance is 12%.
The bonds are sold for $347,355. 1. What is the amount of the discount on the bonds at issuance? 2. How much bond interest expense will be recognized over the life of the bonds? 3. Prepare an amortization table like the one in Exhibit 14B-1 for these bonds; use the effective interest method to amortize the discount.