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On January 1, 20x6, Cell Co. lends some money in exchange for a10% $100,000...

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Accounting

On January 1, 20x6, Cell Co. lends some money in exchange for a10% $100,000 10-year note. The market rate for similar notes is 8%.Interest is received semiannually each July 1 and January 1. Thefinancial year ends December 31. Round to the nearest whole number.(Hint: Prepare a partial amortization schedule to July 1, 20x8)

a.    The note isissued at-                                 (par / premium / discount)

b.    The present valueof the note is - $

c.     The cashreceived at July 1, 20x6 is -$  

d.     Theinterest revenue to Cell Co. at December 31, 20x7 is -$

e.     Thecarrying amount of the note at July 1, 20x8 is -$

Answer & Explanation Solved by verified expert
3.7 Ratings (497 Votes)

a) Ans:

Coupon Rate =10%

Market rate=8%

Coupon rate is more than Market rate i.e It is issued at Premium

b) The Present Value of the Bond is

Ans: Interest received per 6 months (PVAF 4% 20 Years) + Maturity Amount (PVF 4% 20 Years)

=(100,000*10/100*6/12)(13.590) + $100,000 *0.4563

=67,950 +45,630=$113,580

c.     The cash received at July 1, 20x6 is -$

Ans: 100,000*10/100*6/12=$5000

d.     The interest revenue to Cell Co. at December 31, 20x7 is -$

Ans: Interest revenue for 1 year=                                                           $10,000 (5000+5000)

Less: Amortisation cost ($113,580-$100,000)/10 years                     ($1358)

                                                    Net Revenue=                                              $8642

E)    The carrying amount of the note at July 1, 20x8 is -$

$5000*PVAF(4%,15 Years) + $100,000*PVF (4%,15y)

$5000* 11.118     +$100,000*.555

=$111, 090
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Transcribed Image Text

In: AccountingOn January 1, 20x6, Cell Co. lends some money in exchange for a10% $100,000 10-year...On January 1, 20x6, Cell Co. lends some money in exchange for a10% $100,000 10-year note. The market rate for similar notes is 8%.Interest is received semiannually each July 1 and January 1. Thefinancial year ends December 31. Round to the nearest whole number.(Hint: Prepare a partial amortization schedule to July 1, 20x8)a.    The note isissued at-                                 (par / premium / discount)b.    The present valueof the note is - $c.     The cashreceived at July 1, 20x6 is -$  d.     Theinterest revenue to Cell Co. at December 31, 20x7 is -$e.     Thecarrying amount of the note at July 1, 20x8 is -$

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