Question

Notes issued at a premium Face Value of Notes 5,000,000 Nominal rate 12% Effective rate 10%...

Notes issued at a premium

Face Value of Notes 5,000,000

Nominal rate 12%

Effective rate 10%

The note is issued on January 1, 2017 and mature in four years on Jan 1, 2021. The interest is payable annually every December 31.

Since the interest is payable annually there are 4 interest periods. The relevant present value factors are:

PV of 1 at 8% for 4 periods .7462

PV of ordinary annuity of 1 at 8% for 4 periods 5.0757

Instructions:

(a) Compute for the present value of the note as issue date,

Present Value_____, Present Value of Annual Interest payments_____, Total Present Value of Notes_____

(b) Compute for the Premium

Face Value______

Market Value or Issue Price_____

Discount on Notes Payable_____

(c) Prepare the amortization table

Date Interest Paid    Interest Expense Premium amortization    Carrying Amount

January 1, 2017 _____________    ___________________    ___________    _________________

June 30,2017    ______________ ___________________    __________ _________________

December 31, 2017 ________________    _________________    ______________ _________________

June 30,2018 ________________ _________________ __________    _________________

December 31,2018 _________________    _________________ ____________    __________________

June 30, 2019    _______________    ________________    _____________ _________________

December 31, 2019    _______________    __________________ _______________ _____________________

Business   Accounting   
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Homework Answers

Answer #1
Face value of notes payable 5000000
Annual interest paid (5000000*12%) 600000
PVF at 10% for 4 years 0.683013
Annuity PVF at 10% for 1 years 3.169865
Present value of face value 3415065
Present value of interest payments 1901919
Total Present value of notes 5316984
Req b:
Face value of notes 5000000
Issue price of notes 5316984
Premium on notes 316984
Req c:
Amort chart
Date Interest Interest Premium Carrying
paid Expense Amortized amount
01.01.17 5316984
31.12.17 600000 531698.4 68301.6 5248682
31.12.18 600000 524868.2 75131.76 5173551
31.12.19 600000 517355.1 82644.94 5090906
31.12.20 600000 509094 90906 5000000
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