Final answer:
When making a lease payment, the amount that goes toward the capital obligation is the payment less the interest expense. Hence, with a 10% interest rate of $95,000, a $20,000 payment includes a $10,500 reduction in the capital lease obligation. For bond valuation, the present value of future cash flows at a higher interest rate results in paying less than the face value of the bond.
Step-by-step explanation:
Addressing the student's question, when the $20,000 lease payment is made, the part of the payment that goes towards reducing the capital obligation is equal to the payment minus the interest expense. Since the interest rate is 10% on an unpaid capital lease obligation of $95,000, the interest for one year would be $9,500 (which is 10% of $95,000). Therefore, the remaining $10,500 of the payment would go towards reducing the capital lease obligation (payment $20,000 - interest $9,500). Hence, the correct journal entry would include a debit to Capital Lease Obligation Payable for $10,500.
Regarding the bond valuation question, as interest rates have risen to 9%, the price of the existing 6% bond would decrease. This is because new bonds offer higher returns given the current interest rate. Using the concept of present value, we can calculate the amount you would be willing to pay for the bond. Assuming annual interest payments, the bond would pay $600 (6% of $10,000) in the final year along with its face value of $10,000. Discounting this at the current 9% interest rate for one year gives us a present value of approximately $9,174.31, which is what you would be willing to pay for the bond.