Present Value of an Annuity Determine the present value of $310,000 to be received at the end of each of four years, using an interest rate of 10%, compounded as follows: 1. By successive computations, using the present value of $1 table in Exhibit S. Round to the nearest whole dollar, First year 31,000 X Second Year 31.000 x Third Year 31,000 X Fourth Year 31,000 x Total present value 31.000 x . By using the present value of an annuity of $1 table in Exhibit Round to the whole dotac, 1,050,032 x c. Why is the present value of the four $310,000 cash receipts less than the $1,40,000 to be calved in the future? The present value is less due to the compounding of interest over the 4 years Review the time value of money concept. Recall that the time value of money concept recognizes that cash received today is worth than the same amount of cash to be received in the future. Previous Check My Work 2 more Check My Workesromaning 17 . o - LMO c 3 Entries for issuing Bonds and Amortizing Premium by Straight-Line Method Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Smiley issued $4,900,000 of 8-year, 8% bonds wa market (effective) interest rate of 7%, receiving cash of $5,196, 306. Interest is payable semiannually on April 1 and October 1. a. Journalize the entry to record the issuance of bonds on April 1, Year 1. If an amount box does not require an entry, leave it blank. Cash 27.727,859 X Premium on Bonds Payable 117.241 x Bonds Payable 28.900.000 Check My Wor Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account, The straight-line method of amortization provides equal amounts of amortization over the life of the bond. Learning Objective 2. b. Journalize the entry to record the first interest payment on October 1, Year 1, and amortization of bond premium for six months, using the straight- line method. (Round to the nearest dollar.) If an amount box does not require an entry, leave it blank Interest Expense 1.128.714 X Premium on Bonds Payable 117.214 x Cach Tv Previous Net Learning Objective 2. b. Journalize the entry to record the first interest payment on October 1, Year 1, and amortization of bond premium for six months, using the straight line method. (Round to the nearest dollar.) If an amount box does not require an entry, leave it blank Interest Expense 1.128.714 X Premium on Bonds Payable 117.214 X Cash 1.011.500X F H M, W Bonds Payable is always recorded at face value. Any difference in se price is reflected in a premium or discount Account The straight-line method of amortization provides equal amounts of amortization over the life of the bond Learning Objective 2 c. Why was the company able to issue the bonds for $5,196,306 rather than for the face amount of $4,900,000? The market rate of interest is less than - the contract rate of interest
