Author Question: Prima, Inc. issued 15-year bonds with a face value of 50,000. The bonds carry a 7 stated interest ... (Read 161 times)

cookcarl

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Prima, Inc. issued 15-year bonds with a face value of 50,000. The bonds carry a 7 stated interest rate and pay interest once a year. They were issued when the market interest rate was 6 and sold for 54,856.38.
 
  Required:
  a. Complete the amortization schedule for the first two years of the bond issue using the effective interest method.
 
   Beginning carrying value Cash payment Interest expense Amortization of discount Ending carrying value
  Year 1 54,856.38
  Year 2
 
  b. Put an X in the appropriate box to describe how each of these items will behave with each additional interest payment:
 
   Increase Decrease Remain the same
  1 Cash payment for interest
  2 Interest expense
  3 Bond carrying value
 
  c. Fill in the correct dollar amounts:
 
  At maturity, after the last interest payment has been made, the unamortized premium on the bonds will be ______________ and the carrying value of the bonds will be _______________.

Question 2

The amount of deposits in transit is included on the bank reconciliation as a(n)
 a. deduction from the balance per the company's books
  b. deduction from the balance per bank statement
  c. addition to the balance per bank statement
  d. addition to the balance per company books



Zack0mack0101@yahoo.com

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Answer to Question 1

a.
Beginning carrying value Cash payment Interest expense Amortization of discount Ending carrying value
Year 1 54,856.38 3,500
50,000 x .07 3,291.38
54,856.38 x .06 208.62
3,500 - 3,291.38 54,647.76
54,856.38 - 208.62
Year 2 54,647.76
Same as Year 1 End 3,500
50,000 x .07 3,278.87
54,647.76 x .06 221.13
3,500 - 3,278.87 54,426.63
54,647.76 - 221.13

b.
Increase Decrease Remain the same
1 Cash payment for interest X
2 Interest expense X
3 Bond carrying value X

c. 0; 50,000

Answer to Question 2

c



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