Assignment for Financial Accounting

97/100

P6-9

a. Present value of the bond at an interest rate of 6%

    PV6%=$600*[1-(1+0.06)-5]/0.06+$10,000/(1+0.06)5=$10,000

b. Present value of the bond at an interest rate of 8%

PV8%=$600*[1-(1+0.08)-5]/0.08+$10,000/(1+0.08)5=$9201.46

c. Present value of the bond at an interest rate of 4%

    PV4%=$600*[1-(1+0.04)-5]/0.04+10,000/(1+0.04)5=$10,890.36

d. The investor would be willing to pay for the bond at the price no more than the Present Value (PV) at different interest rate. The more interest rate is, the less the investor is willing to pay. In this case, the investor would be willing to pay $10,000 at an interest rate of 6%, $9201.46 at 8%, $10,890.36 at 4%.

P6-10

a. PV6%=600/(1+0.06)2+600/(1+0.06)+10,000/(1+0.06)2=$10,000

b. PV8%=600/(1+0.08)2+600/(1+0.08)+10,000/(1+0.08)2=$9,643.35

c. PV4%=600/(1+0.04)2+600/(1+0.04)+10,000/(1+0.04)2=$10,377.22

d. The selling price of bonds prior to their maturity date is negatively related to the discount interest rate, which means the higher interest rate is, the lower the selling price would be. In this case, the selling price would be $10,000 at an interest rate of 6%, $9,643.35 at 8%, $10,377.22 at 4%.

E8-1

a. Entries for parts (a) through (d)

(a). Accounts receivable (Debit): 100,000

            Sales revenue (Credit): 100,000

(b). Cash (Debit): 60,000

            Accounts receivable (Credit): 60,000

(c). Bad debt expense (Debit): 4,000

           Allowance for doubtful accounts (Credit): 4,000

   Allowance for doubtful accounts (Debit): 4,000

       Accounts receivable (Credit): 4,000

(d). Bad debt expense (Debit): 12000

            Allowance for doubtful accounts (Credit): 12000

b. Computing the following at year-end;

1. Net accounts receivable