Reference no: EM13328491

Question 1: Bonds payable calculate issue price and amortize premium On January 1, 2013, Learned, Inc., issued $90 million face amount of 20-year, 14% stated rate bonds when market interest rates were 16%. The bonds pay interest semiannually each June 30 and December 31 and mature on December 31, 2032.

Required:

a. Using the present value tables in Chapter 6, calculate the proceeds (issue price) of Learned, Inc. s, bonds on January 1, 2013, assuming that the bonds were sold to provide a market rate of return to the investor.

b. Assume instead that the proceeds were $93,000,000. Use the horizontal model (or write the journal entry) to record the payment of semiannual interest and the related premium amortization on June 30, 2013, assuming that the premium of $3,000,000 is amortized on a straight-line basis.

c. If the premium in part b were amortized using the compound interest method, would interest expense for the year ended December 31, 2013, be more than, less than, or equal to the interest expense reported using the straight-line method of premium amortization? Explain.

d. In reality, the difference between the stated interest rate and the market rate would be substantially less than 2%. The dramatic difference in this problem was designed so that you could use present value tables to answer part a. What causes the stated rate to be different from the market rate, and why is the difference likely to be much less than depicted in this problem?

Question 2: Calculate stock dividend shares and cash dividend amounts Assume that you own 4,000 shares of Blueco, Inc. s, common stock and that you currently receive cash dividends of $0.84 per share per year.

Required:

a. If Blueco, Inc., declared a 5% stock dividend, how many shares of common stock would you receive as a dividend?

b. Calculate the cash dividend per share amount to be paid after the stock dividend that would result in the same total cash dividend (as was received before the stock dividend).

c. If the cash dividend remained at $0.84 per share after the stock dividend, what per share cash dividend amount without a stock dividend would have accomplished the same total cash dividend?

d. Why would a company have a dividend policy of paying a $0.10 per share cash dividend and issuing a 5% stock dividend every year?