Question

On January 1f this ycar, Olive Corporation issucd bands. Interest is payable once a year on December pertains to the bonds 1. The bonds mature st the end of four years. Olive uses the effective interest aTortization method. The partial ly completed amortization schedule below Cesh Amortizalion Dale Interest Balance January 1. Year 42,734 $ 2,393 7 $ 2,562 S 169 42387 End of Year 2 7 Farl of Ya 42.000 363 Required information 10.00 points Required: 1. Complete the amortization schodule, (Enter all your values positive. Round your final answers to nearest whole dollar amount.) Date Cash Interest Amortization Balance January 1, Year 1 42.734 2.393 S 2,562 End of Year 169 42.565 End of Year 2 42,367 End of Year 3 188 End of Year 4 42,000 2,363 2. When the bonds mature at the end of Year 4, what amount of principal will Olive pay investors? Principal amount References eBook & Resources Difficulty: 2 Medium Worksheet Check my work value: 10.00 points 3. How much cash was received on the day the bonds were issued (sold)? Cash received 4. Were the bonds issued at a premium or a discount? If so, what was the amount of the premium or discount? eBook &Resources References Learnin premiu Worksheet Difficulty: 2 Medium Check my work value: 10.00 points 5. How much cash will be disbursed for interest each period and in total over the life of the bonds? Cash disbursed per period Cash disbursed in total 6. What is the coupon rate? (Enter your answer as a percentage rounded to 1 decimal place (i.e. 0.123 should be entered as 12.3).) Coupon Rate % References eBook & Resources Worksheet Difficulty: 2 Medium Learning Objective: 10-05 Report bonds pa premium. Check my work value: 10.00 points 7. What was the annual market rate of interest on the date the bonds were issued? (Enter your answer as a percentage rounded to 1 decimal place (i.e. Market rate of interest % 8. What amount interest expense will be reported on the income statement for Year 2 and Year 3? (Round your final answers to nearest whole dollar amount.) Interest Expense Year 2 Year 3 References eBook & Resources Learning Objective: 10-05 Report bonds payable and inter premium Worksheet Difficulty: 2 Medium Check my work value: 10.00 points 9. What amount will be reported on the balance sheet at the end of Year 2 and Year 3? Bonds Payable Year 2 Year 3

Answer 1

1
	Date	Cash	Interest	Amortization	Balance
	Jan Year 1				$42,734
	End of year 1	$2,562	$2,393	$169	$42,565
	End of year 2	$2,562	$2,384	$178	$42,387
	End of year 3	$2,562	$2,374	$188	$42,198
	End of year 4	$2,562	$2,364	$198	$42,000
2	At the end of the 4th year, when the bond matures olive will pay the principal amount of $42,000
3	Since the Bonds are issued at premium the cash received is $42,734
4	Bond was issued at premium Premium amount =$42,734 - $42,000 =$2,734
5	Cash will be disbursed at the rate of 6.1% p.a on the face value of $42,000 which will be $2,562 per period
	Total interest paid in cash =$2,562*4 years =$10,248
6	The coupon amount is 6.1%($2,562/$42,000)
7	Market rate of Interest =$2,393 / $42,734 =5.60%
	It is the rate at which interest expenses for each year is calculated on the closing value of bond
8	Interest expense for year 2 =$2,384
	Interes expense for year 3 =$2,374
9	Balance at end of year 2 =$42,387
	Balance at end of year 3 =$42,198
	Note:There might be some fraction errors, so if you do not get the correct answer then try adding 1 or subtract 1 from the above numbers.You will get the answer