ACCT5001 S1 2010

Additional Self-Study Questions

Week 10

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? .

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

10/05/2010