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    Marilou Arcillas Panisales
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    The document provides instructions for calculating the present value of notes issued at a discount and at a premium. For notes issued at a discount, the face value is $4,000,000 but the notes are issued for less than face value, resulting in a discount. The discount must be amortized over the life of the notes. For notes issued at a premium, the face value is $5,000,000 but the notes are issued for more than face value, resulting in a premium. The premium must be amortized over the life of the notes. The document provides the necessary factors and rates to calculate the present value of each note and set up amortization tables to allocate the discount or premium over time.

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    The document provides instructions for calculating the present value of notes issued at a discount and at a premium. For notes issued at a discount, the face value is $4,000,000 but the notes are issued for less than face value, resulting in a discount. The discount must be amortized over the life of the notes. For notes issued at a premium, the face value is $5,000,000 but the notes are issued for more than face value, resulting in a premium. The premium must be amortized over the life of the notes. The document provides the necessary factors and rates to calculate the present value of each note and set up amortization tables to allocate the discount or premium over time.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    91 views3 pages

    Assignment

    Uploaded by

    Marilou Arcillas Panisales
    The document provides instructions for calculating the present value of notes issued at a discount and at a premium. For notes issued at a discount, the face value is $4,000,000 but the notes are issued for less than face value, resulting in a discount. The discount must be amortized over the life of the notes. For notes issued at a premium, the face value is $5,000,000 but the notes are issued for more than face value, resulting in a premium. The premium must be amortized over the life of the notes. The document provides the necessary factors and rates to calculate the present value of each note and set up amortization tables to allocate the discount or premium over time.

    Copyright:

    © All Rights Reserved
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    of 3

    Notes issued at a discount

     
    Face value of notes                                                        4,000,000
    Nominal rate                                                                                     6%
    Effective rate                                                                                    8%
     
    The note is issued on January 1, 2017 and mature in four years on January 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                                                          .7350
    PV of ordinary annuity of 1 at 8% for 4 periods               3.3121
     
    Instructions:
    (a)   Compute for the present value of the note as issue date

    Present value of principal 


    Present value of annual interest
    payments 
    Total Present Value of notes      
     
    (b)  Compute for the discount

    Face value

    Market value or issue


    price

    Discount on notes payable


     
    (c)   Prepare the amortization table 
    Interest Discount Carrying
    Date Interest Paid
    Expense Amortization Amount
    January 1, 2017 -    
    December 31,
    2017
    December 31,
    2018
    December 31,
    2019
    December 31,
    2020

    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 January 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 of principal


    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 
    Interest Premium Carrying
    Date Interest Paid
    Expense Amortization 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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