ACCT5001 S1 2010 Additional Self-Study Questions Week 10

ACCT5001 S1 2010 Week 10 Additiional Self Study Questions (2).doc 10/05/2010

ADDITIONA L SELF STUDY QUESTIONS – WEEK 10

1 a) What is the present value of $10,000 due in 8 periods from now, discounted at 10%?

b) What is the present value of an annuity $10,000 to be paid at the end of each of 6 periods, discounted at 8%?

2. Neagle Corporation issued $500,000 9%, 10 year Debentures (bonds) on 1 July 2007 for $468 895. This price resulted in an effective interest rate of 10% on the bonds (equivalent to the market rate at the date of issue). Interest is payable semi annually on 1 July and 1 January each year.

a) Use present value calculations to show how the issue price was derived

b) Record the issue of the debentures (bonds) on 1 July 2007

c) Record the payment of interest on 1 January 2008

d) Record the accrual of interest on 30 June 2008 (assuming the accounting period ends on June 30)

3. $100 000 9% 20 year Debentures (bonds) were issued on 1 January 2004. Interest is to be paid annually on December 31 each year. At the time of issue the market rate on similar securities was 10%.

a) Record the issue of the bonds 01 January 2004

b) Record the interest payment on 31/12/2004

c) Record the interest payment on 31/12/2005

d) Show the Statement of Financial Position (extract) presentation on 31/12/2005

e) Why didn't the bonds sell for $100 000?

4. On 1 January 2009 100 000 15 year bonds issued, with a coupon rate of 9% p.a. paid semi-annually. By the time of issue the market rate on similar debt securities had dropped to 8%.

a) Record the issue of the bonds 01/01/2009

b) Record the interest payment on 1/07/2009

c) Record the interest payment on 31/12/2009

d) Show the BS presentation on 31/12/2009

e) Why didn't the bonds sell for $100 000?

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