Managerial Accounting Questions Q2 Q3 Franklin Corporation i

Managerial Accounting Questions:

Q2:

Q3:

Franklin Corporation issues $81,000, 10%, 5-year bonds on January 1, for $84,645. Interest is paid semiannually on January 1 and July 1. If Franklin Corporation uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1 is

$3,240

$6,480

$3,686

$3,605

NMT Below is a table for the present value of $1 at Compound interest. 6% 10% 12% 0.943 0.909 0.893 0.890 0.826 0.797 0.840 0.751 0.712 0.792 0.683 0.636 0.747 0.621 0.567 Below is a table for the present value of an annuity of $1 at compound interest. 6% 10% 12% 0.943 0.909 0.893 1.833 1.736 1.690 2.673 2.487 2.402 3.465 3.170 3.037 4.212 3.791 3.605 - in Using the tables above, what is the present value of $10,093.00 (rounded to the nearest dollar) to be received at the end of each of the next 4 years, assuming an earnings rate of 12%? $30,652 $24,243 $10,093 $36,385

Solution

1st question:

A.$30,652.

present value = amount of annual payments * present value annuity factor (for 4 years @12%)

=>$10,093 * 3.037

=>$30,652.44.

q2.

d.$1,132,305.

amount of cash received = $1,102,000 * (102.75%) =>$1,132,305.

note: 102 3/4 means (102 + 3/4 =>102.75%).

q3.

C.$3,686.

amortisation of premium per interest payment period = total premium / number of periods

total premium = (84,645 - 81,000) =>3,645.

number of periods = 5 years * 2 =>10 periods.

amortisation per period = $3,645 / 10 =>$364.50

interest to be paid in cash = $81,000 * 10 % * 1/2 =>$4,050.

bond interest expense = cash interest - amortisation per period

=>$4,050- 364.50

=>$3,686.