Quiz #3 Study Guide

1. Kent puts $8,000 in an account today which pays 5% (compound) interest. He allows this money to stay
in the account and grow for 5 years.
a. Which table in Appendix D will you use to determine how much he will have at the end of 5 years?
Table = ___________________________
b. What is the investment worth after 5 years? $ 8,000 * ____________ = ____________
2. You want to save up for a car which you will need when you graduate in 3 years. How much would you
have to deposit today, if this amount would earn 8% per year, to have $9,000 when you graduate?
a. $9,000 * ____________ = ____________
3. You have an investment that pays $10,000 per year for 20 years. What is the present value of this
investment assuming 8% interest?
a. $10,000 * ___________ = ____________
4. NC Enterprises issues $200,000 of bonds paying a stated interest rate of 8%. The bonds are due in 10
years, with interest payable semiannually on June 30 and December 31 each year. When the bonds are
issued, other bonds of similar risk and maturity are paying 10%, i.e., the discount rate or market interest
rate is 10%.

Calculate the issuance (selling) price of this bond. Note: each interest payment (cash flow) will be equal to
principal x stated interest rate x 6/12
Present value of interest payments
(annuity portion)
_______ * ___________ =
Present Value of Bond Principal
(single sum value)
200,000* ____________=
Total Present Value, or selling price

5. NC Enterprises issues $100,000 of bonds paying a stated interest rate of 12%. The bonds are due in
10 years, with interest payable semiannually on June 30 and December 31 each year. When the bonds
are issued, other bonds of similar risk and maturity are paying 10%, i.e., the discount rate or market
interest rate is 10%.
a. Calculate the selling price of this bond:
Present value of interest payment
(annuity)
_______ * ___________ =
Present Value of Bond Principal
(single sum)
100,000* ____________=
Total Present Value
6. Warner Company issued $4,000,000 of 7%, 10-year bonds on January 1, 2012, for $3,454,800. The
market or effective interest rate is 8%. Interest is paid annually on each January 1
st
, and the effective-
interest method of amortization is to be used. Provide a journal entry to record issuance of
these long-term Bonds: (You may or may not need all rows of this textbox)




7. Provide the end of the year adjusting journal entry (for Dec. 31, 2012) that would record accrued
Interest Expense for this bond (using the effective-interest method of amortization): (You may or may
not need all rows of this textbox)




8. Provide the journal entry required on Jan. 1, 2013, when the interest is paid. (You may or may not
need all rows of this textbox)





9. Using the familiar T account format post (show) the above entries to the Discount on Bond Payable
T-account.




10. What NET Bond Payable value would appear on Warners 12/31/12 Balance Sheet:








Fill in the blanks below:

11. Thayer Company purchased a building on January 2 by signing a long-term $3,520,000 mortgage with
monthly payments of $33,100. The mortgage carries an interest rate of 10 percent. Write the journal
entry to record the first monthly payment by Thayer: (You may or may not need all rows of this
textbox)





12. What is the balance in the Mortgage Payable account, after this first monthly payment is recorded?


13. What is Interest Expense for the next month (February)?


14. Julie Lambert has a large consulting practice. A new client is required to pay a fee up front, which
results in Lambert receiving $15,000 on April 13th. How does Lambert account for the $15,000 cash
received in April, at the beginning of the engagement? (You may or may not need all rows of this
textbox)





15. How does Lambert account for $8,000 worth of work completed on November 15th? (You may or may
not need all rows of this textbox)





16. What is the definition of Debt to Asset Ratio?
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