The notes to the Thorson Ltd. financial statements reported the following data on December 31, Year 1 (end of the fiscal year): Thorson amortizes bond discounts using the effective-interest method and pays all interest amounts at December 31.   Requirements 1. Assume the market interest rate is 6% on January 1 of year 1, the date the bonds are issued. a. Using the PV function in Excel, what is the issue price of the bonds? b. What is the maturity value of the bonds? c. What is Thorson’s annual cash interest payment on the bonds?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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The notes to the Thorson Ltd.
financial statements reported the following data on December 31, Year 1 (end of the fiscal year):

Thorson amortizes bond discounts using the effective-interest method and pays all interest
amounts at December 31.

 

Requirements
1. Assume the market interest rate is 6% on January 1 of year 1, the date the bonds are issued.
a. Using the PV function in Excel, what is the issue price of the bonds?
b. What is the maturity value of the bonds?
c. What is Thorson’s annual cash interest payment on the bonds?
d. What is the carrying amount of the bonds at December 31, year 1?
2. Prepare an amortization table through the maturity date for the bonds using Excel. (Round
all amounts to the nearest dollar.) How much is Thorson’s interest expense on the bonds for
the year ended December 31, Year 4?
3. Show how Thorson would report these bonds and notes at December 31, Year 4.

P9-53A. (Learning Objectives 2, 6: Analyze a company's long-term debt; report long-term
debt on the balance sheet [effective-interest method]) The notes to the Thorson Ltd.
financial statements reported the following data on December 31, Year 1 (end of the fiscal year):
Note 6. Indebtedness
Bonds payable, 1% due on December 31, Year 8... $3,500,000
Less: Discount.....
Notes payable, 6%, payable in $45,000 annual
installments starting in Year 5.........
?
?
$270,000
Thorson amortizes bond discounts using the effective-interest method and pays all interest
amounts at December 31.
Requirements
1. Assume the market interest rate is 6% on January 1 of year 1, the date the bonds are issued.
a. Using the PV function in Excel, what is the issue price of the bonds?
b. What is the maturity value of the bonds?
c. What is Thorson's annual cash interest payment on the bonds?
d. What is the carrying amount of the bonds at December 31, year 1?
2. Prepare an amortization table through the maturity date for the bonds using Excel. (Round
all amounts to the nearest dollar.) How much is Thorson's interest expense on the bonds for
the year ended December 31, Year 4?
3. Show how Thorson would report these bonds and notes at December 31, Year 4.
Transcribed Image Text:P9-53A. (Learning Objectives 2, 6: Analyze a company's long-term debt; report long-term debt on the balance sheet [effective-interest method]) The notes to the Thorson Ltd. financial statements reported the following data on December 31, Year 1 (end of the fiscal year): Note 6. Indebtedness Bonds payable, 1% due on December 31, Year 8... $3,500,000 Less: Discount..... Notes payable, 6%, payable in $45,000 annual installments starting in Year 5......... ? ? $270,000 Thorson amortizes bond discounts using the effective-interest method and pays all interest amounts at December 31. Requirements 1. Assume the market interest rate is 6% on January 1 of year 1, the date the bonds are issued. a. Using the PV function in Excel, what is the issue price of the bonds? b. What is the maturity value of the bonds? c. What is Thorson's annual cash interest payment on the bonds? d. What is the carrying amount of the bonds at December 31, year 1? 2. Prepare an amortization table through the maturity date for the bonds using Excel. (Round all amounts to the nearest dollar.) How much is Thorson's interest expense on the bonds for the year ended December 31, Year 4? 3. Show how Thorson would report these bonds and notes at December 31, Year 4.
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