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ryzh [129]
3 years ago
12

National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2021. The bonds mature o

n December 31, 2024 (4 years). For bonds of similar risk and maturity the market yield was 10%. Interest is paid semiannually on June 30 and December 31. Required: 1. Determine the price of the bonds at January 1, 2021. 2. Prepare the journal entry to record their issuance by National on January
Business
1 answer:
Jobisdone [24]3 years ago
8 0

Answer:

The price of the bonds $483,841.97    

Journal entry:

Dr cash $483,841.97    

Dr discount on bonds payable $16,158.03    

Cr bonds payable $500,000.00

Explanation:

Using a financial calculator, we determine the bond price by using the following inputs:

N=8(number of semiannual coupons in 4 years=4*2=8)

PMT=22500 (semiannual coupon=face value*coupon rate*6/12= $500,000*9%*6/12=$22,500)

I/Y=5(semiannual yield=10%%*6/12=5%)

FV=500000( the face value is $600,000)

CPT PV=$483,841.97    

Bond discount=face value-bond price

Bond discount=$500,000-$483,841.97    

Bond discount=$16,158.03    

The double entries are to debit cash and discount on bonds payable with $483,841.97 and $16,158.03  respectively while bonds payable is credited with the face value of $500,000

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Answer:

NPV = $62,258.56

Explanation:

initial outlay year 0 = $400,000

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if you do it by hand:

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But implicit cost would be $4,000 if the financial assets are now used in business, and are not left as they are.

Implicit cost is internally generated opportunity cost.

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Final Answer

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