Problem 9-7B Calculate the issue price of a bond and prepare amortization schedules (LO9-5, 9-7) [The following information applies to the questions displayed below.] Christmas Anytime issues $790,000 of 7% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. Calculate the issue price of a bond and complete the first three rows of an amortization schedule when:

Answer is given below.

Explanation:

Solution 1:

Chart Values are based on:      

n= (15 Years*2)30Half years

i= (7%/2)3.50%Semi annual

Cash FlowTable Value*Amount=Present Value

Principal0.356278*$7,90,000=$2,81,460

Interest (Annuity) [$790,000*7%*6/12]18.392045*$27,650=$5,08,540

Price of Bonds  $7,90,000

Bond Amortization Schedule

DateCash interestInterest ExpenseChanage in Carrying ValueCarrying value

01-Jan-21    $7,90,000

30-Jun-21$27,650$27,650$0$7,90,000

31-Dec-21$27,650$27,650$0$7,90,000

Solution 2:

Chart Values are based on:      

n= (15 Years*2)30Half years

i= (8%/2)4.00%Semi annual

Cash FlowTable Value*Amount=Present Value

Principal0.308319*$7,90,000=$2,43,572

Interest (Annuity) [$790,000*7%*6/12]17.292033*$27,650=$4,78,125

Price of Bonds  $7,21,696

Bond Amortization Schedule

DateCash interestInterest ExpenseChange in Carrying ValueCarrying value

01-Jan-21    $7,21,696

30-Jun-21$27,650$28,868$1,218$7,22,914

31-Dec-21$27,650$28,917$1,267$7,24,181

Solution 3:

Chart Values are based on:      

n= (15 Years*2)30Half years

i= (6%/2)3.00%Semi annual

Cash FlowTable Value*Amount=Present Value

Principal0.411987*$7,90,000=$3,25,470

Interest (Annuity) [$790,000*7%*6/12]19.600441*$27,650=$5,41,952

Price of Bonds  $8,67,422

Bond Amortization Schedule

DateCash interestInterest ExpenseChange in Carrying ValueCarrying value

01-Jan-21    $8,67,422

30-Jun-21$27,650$26,023-$1,627$8,65,794

31-Dec-21$27,650$25,974-$1,676$8,64,118

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation:

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