Question
On January 1, 2016, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June 30 and December 31. Portions of the bond amortization
| On January 1, 2016, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below: |
| Payment | Cash Payment | Effective Interest | Increase in Balance | Outstanding Balance |
| 6,047,387 | ||||
| 1 | 292,000 | 302,369 | 10,369 | 6,057,756 |
| 2 | 292,000 | 302,888 | 10,888 | 6,068,644 |
| 3 | 292,000 | 303,432 | 11,432 | 6,080,076 |
| 4 | 292,000 | 304,004 | 12,004 | 6,092,080 |
| 5 | 292,000 | 304,604 | 12,604 | 6,104,684 |
| 6 | 292,000 | 305,234 | 13,234 | 6,117,918 |
| ~ | ~ | ~ | ~ | ~ |
| ~ | ~ | ~ | ~ | ~ |
| ~ | ~ | ~ | ~ | ~ |
| 38 | 292,000 | 355,060 | 63,060 | 7,164,267 |
| 39 | 292,000 | 358,213 | 66,213 | 7,230,480 |
| 40 | 292,000 | 361,520 | 69,520 | 7,300,000 |
| Required: |
| 1. | What is the face amount of the bonds? |
| 2. | What is the initial selling price of the bonds? |
| 3. | What is the term to maturity in years? |
| 4. | Interest is determined by what approach? | ||||
|
| 5. | What is the stated annual interest rate? |
| 6. | What is the effective annual interest rate? |
| 7. | What is the total cash interest paid over the term to maturity? |
| 8. | What is the total effective interest expense recorded over the term to maturity? |
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Cost Management A Strategic Emphasis
Authors: Edward Blocher, Kung Chen, Thomas Lin
1st Edition
0070059160, 978-0070059160
