Reference no: EM131790666

Assignment

The use of a time line is important when determining a carrying value since the carrying value changes as "n" declines. However, you should be able to calculate the following carrying values without using a complete amortization table. Using an amortization table in Excel might make the process easier, but you will not have that option on an exam.

Bond 1: $400,000 face value, 3%, 20 years to maturity issued on January 1, 2015. Interest payment made semi-annually on June 30th
and December 31st. The yield rate is 2.5%.

Calculate the issue price of the bonds.

Calculate the carrying value of the bonds on the following dates assuming effective interest amortization is used:

01-Jan-19
30-Jun-27
01-Oct-29
31-Dec-34

Calculate the carrying value of the bonds on the following dates assuming straight line amortization is used:

01-Jan-19
30-Jun-27
01-Oct-29
31-Dec-34

These bonds are retired on June 30, 2027 at 102. Assuming the company used effective interest amortiztion to amortize the premium or discount, calculate the gain or (loss) on this early retirement.

Bond 2: $600,000 face value, 5%, 10 years to maturity issued on March 1, 2015. Interest payment made semi-annually on August 31st
and February 28th. The yield rate is 4%.

Calculate the issue price of the bonds.

Calculate the carrying value of the bonds on the following dates assuming effective interest amortization is used:

01-Mar-17
01-Sep-20
01-Dec-22
28-Feb-24

Calculate the carrying value of the bonds on the following dates assuming straight line amortization is used:

01-Mar-17
01-Sep-20
01-Dec-22
28-Feb-24

These bonds are retired on June 30, 2021 at 102. Assuming the company used straight line interest amortiztion to amortize the premium or discount, calculate the gain or (loss) on this early retirement.