Question

Complete separate classified partial balance sheets for both financing options. Only the Liability and Equity section is needed. *Show work for partial balance sheet*

KTZFIG Consulting and Sales Inc
Cash Received/Annual Cash Payment Requirement
The company could issue $3,000,000 of long-term bonds, due in 8 years with a stated rate of interest, paid semiannually, of 4%. The market rate for similar debt is 6%.
	Cash Received				Annual Cash Required
		$2,622,660			$120,000
	Face amount			$         3,000,000
	Face rate			4%
	Interest Payment periods			16
	Interest Payment			$               60,000
	Term			8 years
	Periods			16
	Market rate			6%
	PV factors used		single sum	0.623
			annuity	12.261
	PV face			$         1,869,000
	PV interest			$             753,660
The company could issue $2,500,000 of long-term bonds, due in 7 years with a stated rate of interest, paid semiannually, of 6%. The market rate for similar debt is 4%.
	Cash Received				Annual Cash Required
		$2,802,950			$150,000
	Face amount			$         2,500,000
	Face rate			6%
	Interest Payment periods			14
	Interest Payment			$               75,000
	Term			7 years
	Periods			14
	Market rate			4%
	PV factors used		single sum	0.758
			annuity	12.106
	PV face			$         1,895,000
	PV interest			$             907,950

Answer 1

	Bond -1
	Bank A/c   Dr					2622660
	Discount on issue of Debentures					377340		It is asset
	4%Long Term Bonds						3000000
Year -1	Discount on issue of debentures is to written off in 8 years
	Writing off discount					47167.5
	Discount on issue of Debentures						47167.5
	Bond -2
	Bank A/c   Dr					2802950
	Premium on issue of Debentures						302950
	6%Long Term Bonds						2500000
	Partial Balance Sheet
	Current Liabilities
	Interest Payable (for 1 term) (60000+75000)						135000
	Long Term liabilities
	Bonds Payable
	- 4% Long Term Bonds						3000000
	- 6% Long Term Bonds						2500000
							5500000
	Total Liabilities						5635000