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E14-11.   (Information Related to Various Bond Issues) (LO 1) Karen Austin Inc. has issued three types of...

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Accounting

E14-11.  

(Information Related to Various Bond Issues)

(LO 1) Karen Austin Inc. has issued three types of debt onJanuary 1, 2017, the start of the company's fiscal year.

(a)$10 million, 10-year, 15% unsecured bonds,interest payable quarterly. Bonds were priced to yield 12%.

(b)$25 million par of 10-year, zero-couponbonds at a price to yield 12% per year.

(c)$20 million, 10-year, 10% mortgage bonds,interest payable annually to yield 12%.

Instructions

Prepare a schedule that identifies the following items for eachbond: (1) maturity value, (2) number of interest periods over lifeof bond, (3) stated rate per each interest period, (4)effective-interest rate per each interest period, (5) paymentamount per period, and (6) present value of bonds at date ofissue.

Answer & Explanation Solved by verified expert
4.4 Ratings (698 Votes)

Unsecured Bonds Zero-Coupon Bonds Mortgage Bonds
1 Maturity Value                           10,000,000.00                    25,000,000.00                20,000,000.00
2 Number of Interest Period                                                  40                                           10                                       10
(10 Years X 4)
3 Stated Rate per period 3.75% 0.00% 10.00%
(15% / 4)
4 Effective Rate Per Period 3% 0% 12%
(12% / 4)
5 Payment Amount per Period                                 375,000.00                                            -                    2,000,000.00
($10,000,000 X 3.75%) ($25,000,000 X 0%) ($20,000,000 X 10%)
6 Present Value                           11,733,639.00                       8,049,250.00                17,739,840.00
($10,000,000 X 0.30656 + $375,000 X 23.11477) ($25,000,000 X 0.32197) ($20,000,000 X 0.32197 + $2,000,000 X 5.65022)

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Transcribed Image Text

E14-11.  (Information Related to Various Bond Issues)(LO 1) Karen Austin Inc. has issued three types of debt onJanuary 1, 2017, the start of the company's fiscal year.(a)$10 million, 10-year, 15% unsecured bonds,interest payable quarterly. Bonds were priced to yield 12%.(b)$25 million par of 10-year, zero-couponbonds at a price to yield 12% per year.(c)$20 million, 10-year, 10% mortgage bonds,interest payable annually to yield 12%.InstructionsPrepare a schedule that identifies the following items for eachbond: (1) maturity value, (2) number of interest periods over lifeof bond, (3) stated rate per each interest period, (4)effective-interest rate per each interest period, (5) paymentamount per period, and (6) present value of bonds at date ofissue.

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