Valix Finacc vol 1 Problem 12-18

Financial Accounting Volume 1 2008 Valix-Peralta
Chapter 1 Problem 12-18

1.  Annual nominal interest (4,000,000 x 16%)                                                              640,000

    Annual effective interest (4,000,000 x 12%)                                                               480,000

    Difference                                                                                                                160,000

    Multiply by present value factor                                                                                  3.605

    Premium                                                                                                                  576,800

    Face value                                                                                                            4,000,000

    Purchase price                                                                                                       4,576,800

                                                                                                             165   

 

2.  Date                 Interest received     Interest income    Premium amortization    Book value

    Jan.  01, 2008                                                                                                         4,576,800

    Dec. 31, 2008           640,000        549,216                    90,784                      4,486,016

    Dec. 31, 2009           640,000        538,322                  101,678           4,384,338

    Dec. 31, 2010           640,000        526,121                  113,879           4,270,459

    Dec. 31, 2011           640,000       512,455                  127,545           4,142,914

    Dec. 31. 2012           640,000        497,086                  142,914           4,000,000

3.  Held to maturity securities                                                            4,576,800

            Cash                                                                                                              4,576,800

    Cash                                                                                                640,000

            Interest income                                                                                               640,000

    Interest income                                                                                 90,784

            Held to maturity securities                                                                                 90,784