On January 1, 2016, the Shagri Company began construction on a new manufacturing facility for its own use. The building was completed in 2017. The only interest-bearing debt the company had outstanding during 2016 was long-term bonds with a book value of $10,000,000 and an effective interest rate of 8%. Construction expenditures incurred during 2016 were as follows: January 1$500,000 March 1 600,000 July 31 480,000 September 30 600,000 December 31 300,000. Required: Calculate the amount of interest capitalized for 2016.

Lerner Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Lerner Corporation issued $12,000,000 of five-year, 8% bonds at a market (effective) interest rate of 6%, receiving cash of$13,023,576. Interest in payable semiannually on April 1 and October 1. Journalize the entries to record the following:

b. First interest payment on October 1, 2016, and amortization of bond premium for six months, using the straight-line method. (Round to the nearest dollar)

Shunda Corporation wholesales parts to appliance manufacturers. On January 1, 2014, Shunda Corporation issued $22,000,000 of five-year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of$23,829,684. Interest is payable semiannually. Shunda Corporation’s fiscal year begins on January 1. The company uses the interest method.

a. Journalize the entries to record the following:

1. Sale of the bonds.
2. First semiannual interest payment, including amortization of premium. Round to the nearest dollar.
3. Second semiannual interest payment, including amortization of premium. Round to the nearest dollar

Yang Corporation wholesales repair products to equipment manufacturers. On May 1, 2014, Yang Corporation issued $20,000,000 of 10-year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of$22,842,560. Interest is payable semiannually on May 1 and November 1. Journalize the entries to record the following:

b. First interest payment on November 1, 2014, and amortization of bond premium for six months, using the straight-line method. (Round to the nearest dollar.)

Yang Corporation wholesales repair products to equipment manufacturers. On May 1, 2014, Yang Corporation issued $20,000,000 of 10-year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of$22,842,560. Interest is payable semiannually on May 1 and November 1. Journalize the entries to record the following: b. First interest payment on November 1, 2014, and amortization of bond premium for six months, using the straight-line method. (Round to the nearest dollar.)

A bank pays interest at the rate r, compounded M times yearly. The effective interest rate $r_e$ is the rate at which interest, if compounded annually, would have to be paid to produce the same yearly return.

(a) Find $r_e$ if r=9 % compounded monthly.

(b) Show that $r_e=(1+r / M)^M-1$ and that $r_e=e^r-1$ if interest is compounded continuously.

(c) Find $r_e$ if r=11 % compounded continuously.

(d) Find the rate r, compounded weekly, that would yield an effective rate of 20 %.

Solve the application problem. Assume a sales commission of $1 per bond, unless indicated otherwise, and use the table in this section. Round the rate to the nearest tenth of a percent.

Pete Chong manages bonds for a fund company. He purchases 4000 Goldman Sachs Group (GS) bonds that mature in 2037. Since this is a large purchase, the commission is only$0.20 per bond. Find (a) the total cost of the purchase including commissions, (b) the annual interest payment, and (c) the effective interest rate based on total cost including commissions.

A bank pays interest at the rate r, compounded M times yearly. The effective interest rate

$$r_e$$

is the rate at which interest, if compounded annually, would have to be paid to produce the same yearly return. (a) Find

$$r_e$$

if r = 9% compounded monthly. (b) Show that

$$r _ { e } = ( 1 + r / M ) ^ { M } - 1$$

and that

$$r _ { e } = e ^ { r } - 1$$

if interest is compounded continuously. (c) Find

$$r_e$$

if r = 11% compounded continuously. (d) Find the rate r that, compounded weekly, would yield an effective rate of 20%.

Shunda Corporation wholesales parts to appliance manufacturers. On January 1, 2014, Shunda Corporation issued $22,000,000 of five-year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of$23,829,684. Interest is payable semiannually. Shunda Corporation’s fiscal year begins on January 1. The company uses the interest method.

a. Prepare the journal entries to record the following:

1. Sale of the bonds.
2. First semiannual interest payment, including amortization of premium. Round to the nearest dollar.
3. Second semiannual interest payment, including amortization of premium. Round to the nearest dollar.

The manager of a retirement account for United Pensions of America purchased $300$ Anadarko Petroleum (APC) bonds maturing in $2016$. Find (a) the total cost of the purchase including commissions, (b) the annual interest payment, and (c) the effective interest rate using total cost including commissions. $\text{(a)}\qquad\underline{\qquad\qquad\qquad\qquad}$ $\text{(b)}\qquad\underline{\qquad\qquad\qquad\qquad}$ $\text{(c)}\qquad\underline{\qquad\qquad\qquad\qquad}$

Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of $2,600,000, or it can make annual payments of$300,000 for 15 years, each payment due on the last day of the year.

Which method of payment do you recommend, assuming an expected effective interest rate of 8% during the future period?

Ware Co. produces and sells motorcycle parts. On the first day of its fiscal year, Ware Co. issued $35,000,000 of five-year, 12% bonds at a market (effective) interest rate of 10%, with interest payable semiannually. Compute the following, presenting figures used in your computations:

a. The amount of cash proceeds from the sale of the bonds. Use the present value of$1 at compound interest table and the present value of an annuity of $1 at compound interest table. Round to the nearest dollar.

b. The amount of premium to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar.

c. The amount of premium to be amortized for the second semiannual interest payment period, using the interest method. Round to the nearest dollar.

d. The amount of the bond interest expense for the first year.

On July 1, 2012, Bliss Industries, Inc. issued $24,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of$19,200,577. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. a. The first semiannual interest payment on December 31, 2012, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.) b. The interest payment on June 30, 2013, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.) 3. Determine the total interest expense for 2012.

Shunda Corporation wholesales parts to appliance manufacturers. On January 1, 2014, Shunda Corporation issued $22,000,000 of five-year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of$23,829,684. Interest is payable semiannually. Shunda Corporation’s fiscal year begins on January 1. The company uses the interest method.

c. Explain why the company was able to issue the bonds for $23,829,684 rather than for its face amount of$22,000,000.