[reo]

Any and all assistance is appreciated, thank you!

On January 1, 2015, Sunset Corporation issued $800,000 of 6% bonds, due in 20 years. The bonds were issued to yield 8%. Interest is payable each July 1 and January 1. Based on International Financial Reporting Standard, the amount preferred to record into “Bonds Payable” account on January 1, 2015 will be:

$800,642

$748,932

$702,037

$641,658

Reo

[TimDay14]

I could be totally wrong, but I think it is $748,932?

[Mika]

((1-1/1.04^40)/0.04)*24000 + 800000/1.04^40

Answer D

REG - 80 (02/13/2015) Roger + Ninja Flash Card + Ninja MCQ + Becker's Note
FAR - 84 (05/29/2015) Roger + Ninja MCQ + Some Wiley book questions
BEC - 77 (08/27/2015) Roger + Ninja MCQ + Half Wiley book questions
AUD - 87 (08/28/2015) Roger + Ninja MCQ + Half Wiley book questions

[Mika]

The Present Value formula of $1

PV = C[1-1/(1+r)^n/r]

The Present value formula of Annunity:

[1-(1+r)^-n/r]

r is 4% (8% /2, interest payable semiannually),

n = 40 (20 years,interest payable semiannually),

C is the cash you received (i.e. Face value of the bond 800,000 x 6% stated rate x 1/2)

So, the first part of the formula is to calculate the annuity of the interest ((1-1/1.04^40)/0.04)*24000

Second part is just the present value of the bond itself 800000/1.04^40

If you seen a question like this in the exam and you forget the Present Value formula..I suggested you make an educated guess and move on.

REG - 80 (02/13/2015) Roger + Ninja Flash Card + Ninja MCQ + Becker's Note
FAR - 84 (05/29/2015) Roger + Ninja MCQ + Some Wiley book questions
BEC - 77 (08/27/2015) Roger + Ninja MCQ + Half Wiley book questions
AUD - 87 (08/28/2015) Roger + Ninja MCQ + Half Wiley book questions

[Anonymous]

I highly doubt you'll see a question like this on your exam – they'll give you a bunch of PV factors – the only trick is picking the right ones.

The only other way to solve this problem would be to create amortization tables based on the given answer choices and figuring out which one arrives at the face value of the bond after the 20 years. You could eliminate the first choice right off the bat since the bond was sold at a discount. In Excel it would take about 2 minutes to create an amort table where you could plug in the different answers to figure out which one works, but it would take a lot longer using the crappy spreadsheet they give you for the real exam.

Maybe the best way to tackle a problem like this would be to create an amortization table for the middle value of possible outcomes – 702,037. As I said before, you can automatically eliminate the carrying amount above the face value of the bond since it was sold at a discount, so if you create an amort table for the middle value you will know which one is the correct answer based on the ending carrying value computed using the middle value.

But again, I highly doubt you see a problem like this as they will give you the PV factors.

[Author]

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