ADMS 3595 Lecture Notes - Lecture 4: Book Value, Cash Flow, Interest Expense
11 May 2018
School
Department
Course
Professor
EXERCISE 14-4 (15-20 minutes)
(a)
1/1/14
Cash ($800,000 X 102%) ................................
816,000
Bonds Payable ................................
816,000
(b)
7/1/14
Interest Expense ................................
39,780
($816,000 X 9.75% X 1/2)
Bonds Payable ................................................................
220
Cash ................................................................
40,000
($800,000 X 10% X 6/12)
(c)
12/31/14
Interest Expense ................................
39,769
($815,780* X 9.75% X 1/2)
Bonds Payable ................................................................
231
Interest Payable ................................
40,000
*
Carrying amount of bonds at July 1, 2014:
Carrying amount of bonds at January 1, 2014
$816,000
Amortization of bond premium
($40,000 – $39,780)
(220)
Carrying amount of bonds at July 1, 2014
$815,780
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EXERCISE 14-7 (15-20 minutes)
(a) The applicable Excel formula to determine the present value of the future cash flows
of $427,068 is as follows:
Excel formula = PV(rate,nper,pmt,fv,type)
Using tables:
Face value of the non-interest-bearing note
$600,000
Discounting factor (12% for 3 periods)
X .71178
Amount to be recorded for the land at January 1, 2014
$427,068
Using a financial calculator:
PV
$ ?
Yields $427,068.15
I
12%
N
3
PMT
0
FV
$ (600,000)
Type
0
Carrying amount of the note at January 1, 2014
$427,068
Applicable interest rate (12%)
X .12
Interest expense to be reported in 2014
$ 51,248
The assessed value for the land is not as clear a measure of the value of the land compared
to the present value of the future cash flows on the note. The present value represents the
agreed cash flows, discounted at the market rate of interest, whereas the assessed value
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has been computed (generally) only for the purpose of municipal taxation. It can be used
as a reasonableness check on the amount arrived for the carrying amount of the non-
interest-bearing note.
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find more resources at oneclass.com
Document Summary
Interest expense 39,780 (,000 x 9. 75% x 1/2) * carrying amount of bonds at july 1, 2014: Carrying amount of bonds at january 1, 2014. Carrying amount of bonds at july 1, 2014. Exercise 14-7 (15-20 minutes) (a) the applicable excel formula to determine the present value of the future cash flows of ,068 is as follows: Amount to be recorded for the land at january 1, 2014 ,068. The assessed value for the land is not as clear a measure of the value of the land compared to the present value of the future cash flows on the note. The present value represents the agreed cash flows, discounted at the market rate of interest, whereas the assessed value. $ 51,248 has been computed (generally) only for the purpose of municipal taxation. It can be used as a reasonableness check on the amount arrived for the carrying amount of the non- interest-bearing note.
