It Is Often Necessary to Compute the Book Value of a Bond

question 24

Essay

It is often necessary to compute the book value of a bond issue several years into its term.Rather than compute an amortization schedule for the entire term, it is possible to directly compute the net bond liability at any interest date under either the interest method or straight-line method.Assume that $100,000 of 8% bonds were issued to yield 10% on January 1, 2010, the bond date.The bonds pay interest each December 31 and are scheduled to mature in ten years.Answer the following questions without producing an amortization schedule.
(a)What is the book value of the bonds on January 1, 2016 if the firm uses the straight-line method.
(b)What is the book value of the bonds on January 1, 2016 if the firm uses the interest (effective interest)method.

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Definitions:

National Assembly

is a legislative body in various countries, and it is often the lower house of a bicameral legislature or a unicameral legislature.

Estates-General

The legislative body in pre-revolutionary France made up of representatives of the three estates: the clergy, the nobility, and the commonpeople.

Third Estate

The common people of France who were not part of the clergy or nobility, representing the vast majority of society and leading the charge in the French Revolution.

Church Properties

Refers to land or buildings owned by religious institutions, which historically could include a wide range of assets from places of worship to educational and healthcare facilities.