Lesson 7 Quick Study With Answers
Lesson 7 Quick Study With Answers
Lesson 7 Quick Study With Answers
$15,000 6% = $900
$900 6/12 = $450
$900 3/12 = $225
$900 1/12 = $75
1
QS 17-2
LO Bond financing
Curtis Ltd. issued $100,000 of 8% bonds at face value on October 1, 2011. Interest is paid each
March 31 and September 30. If Curtis's tax rate is 40%, what is the annual after-tax borrowing
cost (a) in percentage terms and (b) in dollars?
a. 8% (1 40%) = 4.8%
b. 4.8% $100,000 = $4,800
2
QS 17-3
LO Bond terms and identifications
Match the following terms and phrases by entering the letter of the phrase that best describes
each term in the blank next to the term.
______Serial bonds
______Convertible bonds
______Registered bonds
______Bearer bonds
______Secured bond
______Debentures
______Bond indenture
a. Issuer records the bondholders' names and addresses.
b. Unsecured; backed only by the issuer's general credit standing.
c. Varying maturity dates.
d. Identifies the rights and responsibilities of the issuer and bondholders.
e. Can be exchanged for shares of the issuer's common shares.
f. Unregistered; interest is paid to the person who possesses them.
g. Specific assets of the issuer are mortgaged as collateral.
c.
e.
a.
f.
serial bonds
convertible bonds
registered bonds
bearer bonds
g. secured bonds
b. debentures
d. bond indenture
QS 17-4
LO3 Issuance of bond at par, recording interest payment and accrual
On March 1, 2011, JenStar Inc. issued at par an $80,000, 6%, three-year bond. Interest is to be
paid quarterly beginning May 31, 2011. JenStar's year-end is July 31. A partial payment schedule
is shown below:
80,000
1,200
800
1,200
QS 17-5
LO Issue of bonds at par between interest dates
Presley Corp. issued $200,000 of 6% bonds on November 1, 2011, at par value. The bonds were
dated October 1, 2011, and pay interest each April 1 and October 1. Record the issue of the
bonds on November 1, 2011.
Quick Study 17-5 (10 minutes)
2011
Nov. 1
Cash ..................................................................................................
201,000
1,000
200,000
a.
n = 14
i = 12% 6/12
.4423 = $229,996
9.2950 = 241,670
b.
c.
n = 14
n = 14
i = 10% 6/12
i = 14% 6/12
.5051* = $262,652 .3878 = $201,656
9.8986 = 257,364 8.7455 = 227,383
$471,666
$520,016*
$429,039**
a.
$465,745
521,134*
b.
$314,806
435,194
c.
$269,513
406,566
$986,879*
$750,000
$676,079
Dec. 31
Cash ....................................................................................
Premium on Bonds Payable........................................
Bonds Payable ...........................................................
Issued bond at a premium.
735,902
18,398
2,602
35,902
700,000
21,000
a. What is the total amount of bond interest expense that will be recognized over
the life of the bonds?
b. What is the amount of bond interest expense recorded on the first interest
payment date?
Quick Study
17-11 (10 minutes)
a
Twenty payments of $3,600 ................................................
.
Less: Premium ($67,478 $60,000) ..................................
Total interest expense
b.
$72,000
(7,478)
$64,522