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TRUE OR FALSE
1. There is a premium when effective rate is greater than to nominal rate.
2. Effective rate should always higher than the nominal rate.
3. PRESENT VALUE of notes payable is the discounted amount of future cash outflow using
Effective Market rate.
4. Retirement of liabilities will always incurred gain in all circumstances.
5. Registration fee is not an example of transaction cost
PROBLEM:
1. & 2. January 1, 2018 an entity authorized to issue 10-year, 12% bonds with a face amount of
500,000 at 101. Consist of 500 units of 1000 face amount.
Compute for the carrying amount.
Compute for discount or premium if there’s any.
3. January 1, 2018 an entity authorized to issue 10-year, 12% bonds with a face amount of 500,000
at 90. Consist of 500 units of 1000 face amount. Compute for the discount or premium.
a. 500,000 b. 505,000 c. 495,000 D. Cannot be computed
4. & 5. January 1, 2018 an entity acquired equipment for 7,000,000 payable in 5 annual equal
installments every December 31 of each year. Interest is 12% on the unpaid balance.
Compute for the interest expense at the end of the year.
Compute for the carrying amount on January of 2019.