8. value 0.55 points On January 1 of this year, Barnett Corporation sold bonds with a face value of $507,500 and a coupon rate of 7 percent. The bonds mature in 20 years and pay interest annually on December 31. Barnett uses the effective-interest amortization method. Ignore any tax effects. Each case is independent of the other cases. (FV of $1. PV of $1. FVA of $1. and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answers to whole dollars.) Required: 1. Complete the following table. The interest rates provided are the annual market rate of interest on the date the bonds were issued. Case A (7%) Case B (8%) Case C (6%) a. Cash received at issuance b. Interest expense recorded in Year 1 c. Cash paid for interest in Year 1 d. Cash paid at maturity for bond principal The following information applies to the questions displayed below.] On January 1 of this year, Olive Corporation issued bonds. Interest is payable once a year on December 31. The bonds mature at the end of four years. Olive uses the effective-interest amortization method. The partially completed amortization schedule below pertains to the bonds: Cash Interest Amortization Date January 1, Year 1 End of Year 1 End of Year 2 End of Year 3 End of Year 4 $ 1792 $ 1661 $ 131 Balance $ 32,566 32.435 32,297 2 32,000 145 1640 9. 0.55 points Required information 0.55 points Required: 1. Complete the amortization schedule. (Enter all your values in positive. Round your final answers to nearest whole dollar amount.) Cash Interest Amortization Balance 32,566 $ 32,435 $ 32,297 $ 1,792 $ 1,661 $ Date January 1, Year 1 End of Year 1 End of Year 2 End of Year 3 End of Year 4 131 $ 145 IS 1,6401 $ 32,000 10 value: 0.55 points Required information 2. When the bonds mature at the end of Year 4, what amount of principal will Olive pay investors? Principal amount 11. value: 0.55 points Required information 3. How much cash was received on the day the bonds were issued (sold)? Cash received 12. value: 0.55 points Required information 4. Were the bonds issued at a premium or a discount? If so, what was the amount of the premium or discount? 13. value: 0.55 points Required information 5. How much cash will be disbursed for interest each period and in total over the life of the bonds? Cash disbursed per period Cash disbursed in total 14. 0.55 points Required information 6. What is the coupon rate? (Enter your answer as a percentage rounded to 1 decimal place (i.e. 0.123 should be entered as 12.3).) Coupon Rate 1 % 15. Value 0.55 points Required information 7. What was the annual market rate of interest on the date the bonds were issued? (Enter your answer as a percentage rounded to 1 decimal place (i.e. 0.123 should be entered as 12.3).) Market rate of interest 16. value: 0.55 points Required information 8. What amount of interest expense will be reported on the income statement for Year 2 and Year 3? (Round your final answers to nearest whole dollar amount.) Interest Expense Year 2 Year 3 17. 0.55 points Required information 9. What amount will be reported on the balance sheet at the end of Year 2 and Year 3? Bonds Payable Year 2 Year 3
