On January 1, year 1, Boston Group issued $100,000 par value, 5% five-year bonds when the market rate of interest was 8%. Interest is payable annually on December 31. The following present value information is available: 5% 8%
Present value of $1 (n=5) 0.78353 0.68058
Present value of an ordinary annuity (n =5) 4.32948 3.99271

Required:
What amount is the value of net bonds payable at the end of year 1?

$90,064

Explanation:

Calculation to determine what amount is the value of net bonds payable at the end of year 1

First step is to calculate the amortization Amount

Amortization=(100,000 x .68058 )+[(100,000 x .05)*3.99271]

Amortization= 68,058+(5,000 x 3.99271)

Amortization= 68,058 + 19,964

Amortization= 88,022

Now let calculate the value of net bonds payable

Value of net bonds payable=88,022+[(88,022 x .08)-5,000]

Value of net bonds payable=88,022+(7042-5000)

Value of net bonds payable=88,022 + 2,042

Value of net bonds payable = $90,064

Therefore what amount is the value of net bonds payable at the end of year 1 is $90,064

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