It's the present value of the future payment. I owe you 107,000 on 12/31/x5, what is that liability worth on 1231/x4?
100,944. So we would take the 100,000 Bond maturity * the discount factor of .9434, just like we would normally for the present of value of 1. Here is the trick – Normally we use the present value of an annuity for the interest payments, but since it is due the very next year, we can use the present value of 1 for the interest payment as well. Long story short, we'll combine the interest (7,000) and principle together (100,000) =107,000 and then multiply that times the discount factor of 6% due in 1 year (.9434), so it would be 107,000 * .9434=100,944. We are going to make a single payment of 107,000 to the investor on 12/31/x5, so technically, we can discount the interest (7,000) and principle (100,000) by the same factor (.9434). it's just a very quick way to figure out the bonds present value on 12/31/x4 without completing the amortization table.
FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.
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