The notes to the Bedford Ltd. financial statements reported the following data on December 31, Year 1 (end of the fiscal year):

Bedford Ltd. amortizes bond discount by the effective-interest method and pays all interest amounts at December 31.

1. Assume the market interest rate on January 1 of year 1, the date of issuance of the bonds, is 6%. Answer the following questions about Bedford Ltd. long-term liabilities:
a. Using the PV function in Excel, what is the issue price of the bonds?
b. What is the maturity value of the 5% bonds?
c. What is Bedford Ltd.’s annual cash interest payment on the 5% bonds?
d. What is the carrying amount of the 5% bonds at December 31, Year 1?
2. Using Exhibit 9-4 as a model, prepare an amortization table through the maturity date for the 5% bonds. Round all amounts to the nearest dollar. How much is Bedford Ltd.’s interest expense on the 5% bonds for the year ended December 31, Year 4?
3. Show how Bedford Ltd. would report the 5% bonds and the 4% notes payable at December 31, Year4.

  • CreatedJuly 25, 2014
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