Lyons Document Storage Corporation Bond Accounting

        Lyons Document Storage Corporation Bond Accounting Name Course Date   1.Lyons Document Storage’s controller, Eric Petro, told Rene that the bonds were issued in  2000 at a discount and that only approximately $9.0 million was received in cash. Explain what is meant by the terms “premium” or “discount” as they relate to bonds. Compute exactly how much the company received from its 8% bonds if the rate prevailing at the time of the original issue was 9% as indicated in Exhibit 2. Also re- compute the amounts shown in the balance sheet as December 21, 2007 and December 31, 2008, for Long-Term Debt. What is the current market value of the bonds outstanding at the current effective interest rate of 6%? Premium Bonds A bond is considered to be a premium bond when its price is higher   than the face value as coupon rate is greater than the required return on the bond and investors want higher yields Discount Bonds A bond is considered to be a discount bond when its price is lower than its face value. Bonds that pay interest half-yearly (semi-annually) and at the coupon interest rate, and have an initial maturity determined (Brigham & Ehrhardt, 2017). Computation of how much the company received from its 8% bonds at 9% yield Lyons Document Storage Corporation Bond Accounting Coupon Rate: 8% paid semiannually Market Yield: 9 %--> 4.5 Semiannually Bond Issue: 10,000,000 No of semiannual periods: 40 (20*2) Calculations PV of Principalà1000/ (1.045) ^40) = 171.9287011 PV of Interest = (1,000*0.04)* (1-1/ (1.045)^40)/0.045à=40* 18.40158442 =736.0633768  Total proceeds at the time of issuance/ current market value P.V. of Principal + P.V of Interest=907.9920779 But there are 10,000 so this is 10,000*907.9920779 =   $9,079,920.78 Total Discount Amortized = Bond Value – Proceedsà10,000,000- 9,079,920.78=$920,079.22 Computation of how much the company received from its 8% bonds at 6% yield Coupon Rate: 8% paid semiannually Market Yield: 6 %--> 3% Semiannually Bond Issue: 10,000,000 No of semiannual periods: 24 (12*2) PV of Principalà1000/ (1.03) ^24) = 491.9337363 P.V of Interest = (1,000*0.04)* (1-1/ (1.03)^24/0.03à=40* 23.11477197=677.4216849 Total proceeds at the time of issuance / current market value P.V. of Principal + P.V of Interest=1169.355421 But there are 10,000 payable so this is 10,000*1169.355421=   $11,693,554.21 Hence, the current market value is $ $9,079,920.78 at 9% annual rate (4.5% sem...