Acc644 Financial Reporting And Analysis Spring 2020 Module 7: Current And Long-Term Liabilities

This study source was downloaded by 100000865965430 from CourseHero.com on 07-15-2023 04:06:54 GMT -05:00https://www.coursehero.com/file/60567336/ACC644-Module-7-class-handout-2020-my-work-docx/ Goldey-Beacom CollegeACC644 Financial Reporting and Analysis Spring 2020Module 7: Current and Long-term liabilities Bond review problem - Assume that a bond with a face amount of $10 million, has a 6% annual coupon rate payable semiannually (6% / 2 = 3% semiannual rate), and a maturity of 10 years (10 x 2 = 20 payments). Interest is calculated at I = P x R x T (10,000,000 x (6% / 2) x 1 yr = $300,000) Bond sold at face value (par) - Investors desire a 3% semiannual return - ParMarket rate = Coupon rate Present value Present value of principal payments ($10,000,000 x 0.55368) 5,536,800Present value of semiannual interest payments ($300,000 x 14.87747) 4,463,200Issue price of bonds 10,000,000PV of interest payments (PV) 20,3) = 14.87747PV of principal (PV) 20,3) = 0.55368Bond sold at a discount: Investors desire a 4% semiannual return - DiscountMarket rate > Coupon rate Present valuePresent value of principal payments ($10,000,000 x 0.45639) 4,563,900Present value of semiannual interest payments ($300,000 x 13.59033) 4,077,099Issue price of bonds 8,640,999PV of interest payments (PV) 20,4) = 13,59033PV of principal (PV) 20,4) = 0.45639Bond sold at