Problem - Debt Issuance, Fair Value: Pinnacle Limited issued $5,000,000 in secured notes payable on 30 April 20X0. The notes mature on 30 April 20X6, and bear interest at 5% per annum, payable every 30 October and 30 April. The notes were issued to yield 6% per annum. Pinnacle's fiscal year ends on 31 December. Pinnacle uses the effective-interest method of amortization.
Required:
Calculate the proceeds from issuance.
Calculate the proceeds from issuance if the yield rate is 4% and the note is issued on 30 April 20X1, still with a maturity date of 30 April 20X6.
Calculate the proceeds from issuance if the yield rate is 8%, and the note is issued on 30 October 20X2, still with a maturity date of 30 April 20X6.
Assume that on 30 October 20X3 the market rate of interest is 10% for notes of similar risk and maturity. Determine: The book value (including unamortized discount/premium) that will be shown on the statement of financial position at that date assuming the note was issued as in requirement 1; and
The fair value that will be disclosed in the notes.