Question: Notes issued at a premium Face Value of Notes 5,000,000 Nominal rate 12% Effective rate 10% The note is issued on January 1, 2017 and

Notes issued at a premium

Face Value of Notes 5,000,000

Nominal rate 12%

Effective rate 10%

The note is issued on January 1, 2017 and mature in four years on Jan 1, 2021. The interest is payable annually every December 31.

Since the interest is payable annually there are 4 interest periods. The relevant present value factors are:

PV of 1 at 8% for 4 periods .7462

PV of ordinary annuity of 1 at 8% for 4 periods 5.0757

Instructions:

(a) Compute for the present value of the note as issue date,

Present Value_____, Present Value of Annual Interest payments_____, Total Present Value of Notes_____

(b) Compute for the Premium

Face Value______

Market Value or Issue Price_____

Discount on Notes Payable_____

(c) Prepare the amortization table

Date Interest Paid Interest Expense Premium amortization Carrying Amount

January 1, 2017 _____________ ___________________ ___________ _________________

June 30,2017 ______________ ___________________ __________ _________________

December 31, 2017 ________________ _________________ ______________ _________________

June 30,2018 ________________ _________________ __________ _________________

December 31,2018 _________________ _________________ ____________ __________________

June 30, 2019 _______________ ________________ _____________ _________________

December 31, 2019 _______________ __________________ _______________ _____________________

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