contestada

Grant Co. issued $500,000 face value, five-year, 8% bonds on December 31, Year 1. The bonds pay interest annually starting from December 31, Year 2. The bonds were sold to yield 7%. Present value factors are as follows: 7% 8% Present value of $1, five periods 0.712986 0.680583 Present value of ordinary annuity of $1, five periods 4.100197 3.992710 Present value of annuity due of $1, five periods 4.387211 4.312127 What amount of long-term liability should Grant report on December 31, Year 1, for this sale

Respuesta :

Parrain

Based on the face value of the bond and the associated interest, the amount of long term liability that Grant should record is $520,500.88.

What is the long term liability?

The long term liability in year 1 should be the present value of the bond. This can be found as:

= Present value of coupon payment + Present value of bond face value

The coupon payment is:

= 8% x 500,000

= $40,000

This is an annuity because it is constant so the revised formula is:
= (Coupon x Present value interest factor of annuity, 7%, 5 years) + (Face value x Present value factor, 7%, 8 years)

Solving therefore gives:

= (40,000 x 4.100197) + (500,000 x 0.712986)

= $520,500.88

Find out more on bond pricing at https://brainly.com/question/25596583.

Otras preguntas