Question
Notes issued at a premium Face Value of Notes 5,000,000 Nominal rate 12% Effective rate 10% The note is issued on January 1, 2017 and
Notes issued at a premium
Face Value of Notes 5,000,000
Nominal rate 12%
Effective rate 10%
The note is issued on January 1, 2017 and mature in four years on Jan 1, 2021. The interest is payable annually every December 31.
Since the interest is payable annually there are 4 interest periods. The relevant present value factors are:
PV of 1 at 8% for 4 periods .7462
PV of ordinary annuity of 1 at 8% for 4 periods 5.0757
Instructions:
(a) Compute for the present value of the note as issue date,
Present Value_____, Present Value of Annual Interest payments_____, Total Present Value of Notes_____
(b) Compute for the Premium
Face Value______
Market Value or Issue Price_____
Discount on Notes Payable_____
(c) Prepare the amortization table
Date Interest Paid Interest Expense Premium amortization Carrying Amount
January 1, 2017 _____________ ___________________ ___________ _________________
June 30,2017 ______________ ___________________ __________ _________________
December 31, 2017 ________________ _________________ ______________ _________________
June 30,2018 ________________ _________________ __________ _________________
December 31,2018 _________________ _________________ ____________ __________________
June 30, 2019 _______________ ________________ _____________ _________________
December 31, 2019 _______________ __________________ _______________ _____________________
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