【正文】 future discounted at 6% (Table I). . . . X 55,840 3. Issuance price of bond . . . . . . . . . . . . . . . . . 92,640 18 Bonds Issued at a Premium ? Sayer Co. issues $100,000, 5year bonds with a stated rate of interest of 10%. The effective rate is 8%. 1. Semiannual interest payment . . . . . . . . . . . . 5,000 Present value of an annuity of 10 payments of $1 at 4% (Table II) . . . . . . . . X 40,554 2. Maturity value of bond . . . . . . . . . . . . . . . . . . 100,000 Present value of $1 received 10 periods in the future discounted at 4% (Table I). . . . X 67,560 3. Issuance price of bond . . . . . . . . . . . . . . . . . 108,114 19 Accounting for Bonds ? Bonds issued at face value: Issuance of bond: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 Bonds Payable . . . . . . . . . . . . . . . . . . . 100,000 Make semiannual interest payment: Interest Expense . . . . . . . . . . . . . . . . . . . . . 5,000 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 Retirement of bond: Bonds Payable . . . . . . . . . . . . . . . . . . . . . . .100,000 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 20 Early Retirement of Bonds ? Bonds are sometimes retired before maturity. – The difference between the face value and the price paid to retire the bonds is recognized as a gain or loss. Retirement of Sayer Co. bond at 105: Bonds Payable . . . . . . . . . . . . . . . . . . . . . . .100,000 Loss on Bond Retirement . . . . . . . . . . . . . . 5,000 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,000 21 DebtRelated Financial Ratios ? Debt ratio – Represents the amount of assets financed through debt. ? Debttoequity ratio – The number of dollars of debt for every dollar invested by stockholders. Total Liabilities Total Assets Total Liabilities Total Stockholders’ Equity 22 Times Interest Earned ? Times Interest Earned Ratio – The ratio of the ine that is available for interest payments. – Measures how much a cushion has in making its interest payments. – The higher the better. Earnings Before Interest and Taxes Interest Expense 23 Bonds Issued at a Discount or Premium Using the Sayer Co. examples, ? Bonds issued at a discount: ? Bonds issued at a premium: Issuance of bonds: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,640 Discount on Bonds . . . . . . . . . . . . . . . . . . . 7,360 Bonds Payable . . . . . . . . . . . . . . . . . . . 100,000 Issuance of bonds: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,114 Premium on Bon