On January 1,a Company Issues Bonds with a Par Value

question 129

Essay

On January 1,a company issues bonds with a par value of $300,000.The bonds mature in five years and pay 8% annual interest each June 30 and December 31.On the issue date,the market rate of interest is 6%.Compute the price of the bonds on their issue date.The following information is taken from present value tables:
$\begin{array}{|l|l|}\hline \text { Present value of an annuity for } 10 \text { periods at } 3 \% & 8.5302 \\\hline \text { Present value of an annuity for } 10 \text { periods at 4\% } & 8.1109 \\\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 3 \% & 0.7441 \\\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 4 \% & 0.6756\\\hline\end{array}$

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Definitions:

Flexible Budget

A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period.

Manufacturing Overhead

The sum of all costs involved in the production process other than direct materials and labor, such as utilities and rent for the manufacturing facilities.

Fixed Overhead Volume Variance

The difference between the budgeted and actual volume of units produced, multiplied by the standard fixed overhead rate.

Labour Efficiency Variance

The difference between the actual labor hours taken to produce a good and the standard hours expected, multiplied by the standard labor rate.