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15 views

c11-hw

Uploaded by

Nguyên Bảo
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Họ và tên: Chiêm Nguyên Bảo

MSSV: BAACIU21172

HOMEWORK CHAP 11

Question 1:

Akers Company sold bonds on July 1, 2014, with a face value of $100,000. These bonds are
due in 10 years. The stated annual interest rate is 6% per year, payable semiannually on June
30 and December 31. These bonds were sold to yield 8%.

Required:

How much did these bonds sell for on July 1, 2014?

100,000
PV of principal=
¿¿

( )
1
1−
6% ( 1+3 % )20
PV of interest payment =100,000 × × = $ 44,632.42
2 3%

 T he price of the bond=PV of principal+ PV of interest payment

¿ 55,367.57+ 44,632.42=$ 99,999.99

Question 2:

On February 1, 2012, Davis Corporation issued 12%, $1,000,000 par, 10-year bonds for
$1,117,000. Davis reacquired all of these bonds at 102% of par, plus accrued interest, on May
1, 2015, and retired them. The unamortized bond premium on that date was $78,000.

Required:

Before income taxes, what was Davis’s gain or loss on the bond extinguishment?

The carrying amount on May1 , 2015=Face value+unamortized bond premium

¿ $ 1,000,000+ $ 78,000=$ 1,078,000

Cash paid ¿ reacquired bonds=$ 1,000,000 ×102 %=$ 1,020,000

Gain∨loss on thebond extinguishment=cash paid−carrying amount=$ 1,020,000−$ 1,078,000=( $ 58,000 )

 David’s loss of $58,000


Question 3:

McClelland Corporation agreed to purchase some landscaping equipment from Agri-Products


for a cash price of $500,000. Before accepting delivery of the equipment, McClelland learned
that the same equipment could be purchased from another dealer for $460,000. To avoid
losing the sale, Agri-Products has offered McClelland a “no interest” payment plan—
McClelland would pay $100,000 at delivery, $200,000 one year later, and the final $200,000 in
two years.

Required:

1. McClelland would usually pay 9% annual interest on a loan of this type. What is the present
value of the Agri-Products loan at the delivery date?

200,000 200,000
PV =100,000+ + =$ 451,822.24
1+ 9 % (1+9 %)2

2. What journal entry would McClelland make if it accepts the deal and buys from Agri-
Products?

Dr. Equipment 451,822.24

Cr. Cash 100,000

Notes payable 351,822.24

3. What should McClelland do?

The present value of the payment plan from Agri-Products is $451,822.24, which is lower than
the $460,000 cost offered by the competing dealer. Therefore, the Agri-Products deal provides a
cost-saving opportunity for McClelland  So, McClelland should accept the offer.

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