Homework Answers
| 1 | Interest on bond is paid semi-annually | |||||
| Periodic interest payment=800000*12%*6/12=$ 48000 | ||||||
| Discount factor=market interest rate for 6 months=10%*6/12=5% | ||||||
| Times periodic interest payment paid=10*2=20 | ||||||
| Issue price if the bond=Present value of periodic interest payment+Present value of principal payment at maturity | ||||||
| Value of an annual coupon bond: | ||||||
| Face value | $800,000 | |||||
| Discount rate | 5% | |||||
| Time to maturity | (10*2) | 20 | ||||
| Coupon rate | (12*6/12) | 6% | ||||
| Price of the bond | ($899,698) | |||||
| .=PV(E11,E12,(E10*E13),E10) | ||||||
| 2 |
Semiannual interest date |
Interest payment |
Interest expense |
Premium amortization |
Premium account balance |
Bond carriying amount |
| Jan 1,2019 | 99698 | 899698 | ||||
| June 30,2019 | 48000 | 44985 | 3015 | 96683 | 896683 | |
| Dec 31,2019 | 48000 | 44834 | 3166 | 93517 | 893517 | |
| June 30,2020 | 48000 | 44676 | 3324 | 90193 | 890193 | |
| Note: | ||||||
| Premium account balance at 12/31/2018=Issue price-Face value of the bond=899698-800000=$ 99698 | ||||||
| Premium account balance for other periods=Beginning balance of premium account-Premium amortization | ||||||
| Bond carrying amount at 12/31/2018=Issue price=$ 899698 | ||||||
| Bond carrying amount for other periods=Beginning balance of bond carrying amount-Premium amortization | ||||||
| Interest payment=Bond face value*Coupon rate=800000*12%*6/12=$ 48000 | ||||||
| Interest expense=Beginning balance of bond carrying amount*market interest rate for 6 months | ||||||
| Premium amortization=Interest payment-Interest expense | ||||||
| 3 | Date | General journal | Debit | Credit | ||
| Jan 1,2019 | Cash | 899698 | ||||
| Premium on bonds | 99698 | |||||
| Bond payable | 800000 | |||||
| (Issue of bonds at premium) | ||||||
| June 30,2019 | Interest expense | 44985 | ||||
| Premium on bonds | 3015 | |||||
| Cash | 48000 | |||||
| (Interest paid) | ||||||
| I appreciate your ratings | ||||||
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