On January 1, 2014, Ellison Co. issued eight-year bonds with aface value of $3,000,000...

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Accounting

On January 1, 2014, Ellison Co. issued eight-year bonds with aface value of $3,000,000 and a stated interest rate of 6%, payablesemiannually on June 30 and December 31. The bonds were sold toyield 8%. Table values are:
Present value of 1 for 8 periods at 6%.627
Present value of 1 for 8 periods at 8%.540
Present value of 1 for 16 periods at3% .623
Present value of 1 for 16 periods at4% .534
Present value of annuity for 8 periodsat 6% 6.210
Present value of annuity for 8 periodsat 8% 5.747
Present value of annuity for 16periods at 3% 12.561
Present value of annuity for 16periods at 4% 11.652
26. The present value of the principalis
a. $2,136,000.
b. $1,602,000.
c. $2,492,000.
d. $1,508,000.
27. The present value of the interestis
a. $1,048,680.
b. $1,398,240.
c. $1,390,400.
d. $1,307,320.
28. The issue price of the bondsis
a. $3,534,240.
b. $2,650,680.
c. $3,558,240.
d. $2,998,400.

Answer & Explanation Solved by verified expert

4.0 Ratings (869 Votes)


Face value	3,000,000
YTM	8%
Payment frequency	semiannual
Bond years	8
So effective semiannual periods	16
Semiannual Interest	4.00%

PV of 1 for 16 period at 4%	0.534

Solution 26

So PV of principal	3000000*0.534
	1,602,000
So option B is correct


Solution 27

Interest rate	6%
Interest payment semiannual	30000006%1/2
	90,000
PV of annuity for 16 period @ 4%	11.652

PV of Interest payments	90000*11.652
	1,048,680
So option A is correct

Solution 28
Issue price of Bond=	PV of Principal + PV of Interest
Issue price of Bond=	1,602,000 + 1,048,680

Issue price of Bond=	2,650,680
So option B is correct

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Transcribed Image Text

In: AccountingOn January 1, 2014, Ellison Co. issued eight-year bonds with aface value of $3,000,000 and...On January 1, 2014, Ellison Co. issued eight-year bonds with aface value of $3,000,000 and a stated interest rate of 6%, payablesemiannually on June 30 and December 31. The bonds were sold toyield 8%. Table values are:Present value of 1 for 8 periods at 6%.627Present value of 1 for 8 periods at 8%.540Present value of 1 for 16 periods at3% .623Present value of 1 for 16 periods at4% .534Present value of annuity for 8 periodsat 6% 6.210Present value of annuity for 8 periodsat 8% 5.747Present value of annuity for 16periods at 3% 12.561Present value of annuity for 16periods at 4% 11.65226. The present value of the principalisa. $2,136,000.b. $1,602,000.c. $2,492,000.d. $1,508,000.27. The present value of the interestisa. $1,048,680.b. $1,398,240.c. $1,390,400.d. $1,307,320.28. The issue price of the bondsisa. $3,534,240.b. $2,650,680.c. $3,558,240.d. $2,998,400.