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Mixed Accounting Questions

2. On September 30, 2009, Webster Co.'s treasurer signed a note promising to pay $520,000 on December 31, 2009. Proceeds of the note were $501,800.
(a.) Calculate the discount rate used by the lender.
(b.) Calculate the effective interest rate on the loan.
(c.) How much interest expense would be recorded for the month of October?

3. The Defiance College sells season tickets for four home football games at a price of $15. For the 2009 season, 5,000 season tickets were sold.
(a.) Explain how should Defiance account for the initial sale of the season tickets?
(b.) Explain what journal entry or affect on the horizontal model would be nescessary to show the effect of hosting a home football game.

4. On April 15, 2009, Melissa purchased $30,000 of Verbecke Co.'s 12%, 20-year bonds at face amount. Verbecke Co. has paid interest due on the bonds regularly. On April 15, 2013, market interest rates had risen to 14% and Melissa is considering selling the bonds.
a. Using the present value tables in Chapter 6 of the textbook, calculate the market value of Melissa's bonds on April 15, 2013.
b. How would any premium or discount be accounted for over the remaining term of the bonds?

Solution Preview

2. (a) In a discounted note, the interest is deducted upfront and the repayment on due date is the principal amount of the note. In this case the principal amount would then be $520,000. The total interest amount is 520,000-501,800 = $18,200
The discount rate = 18,200/520,000 = 3.5% for 3 months X 4 = 14% APR

(b) Effective annual rate = (1+periodic rate)^ frequency - 1
periodic rate = 3.5% and compounding frequency = 4
Effective rate = (1+3.5%)^4 -1 = 14.75%

(c) Total interest amount is 18,200 and this will be amortized over 3 months. Amortization per month = 18,200/3 = 6,066.67. This is the amount of ...

Solution Summary

The solution explains some accounting questions, including concepts like note discounts, season tickets and bond issues. 453 words.