Question

Rangel Corporation issued $560,000 of 5%, 10-year bonds payable on March 31, 2019. The market interest rate at the date of issuance was 10%, and the bonds pay interest semiannually. Rangel Corporation's year-end is March 31. Read the requirements. 1. Using the PV function in Excel, calculate the issue price of the bonds. (Round your answer to the nearest whole dollar.) The issue price of the bonds is $ . i Requirements 1. Using the PV function in Excel, calculate the issue price of the bonds. 2. Prepare an effective-interest amortization table for the bonds through the first three interest payments. Round amounts to the nearest dollar. 3. Record Rangel Corporation's issuance of the bonds on March 31, 2019, and payment of the first semiannual interest amount and amortization of the bond discount on September 30, 2019. Explanations are not required. Print Done

Answer 1

1. Coupon Interest payment is semiannual. Annual Interest rate is 10%, so semi annual interest rate is 10%/2 = 5%.

Semiannual coupon interest = $560,000 * 5% / 2 = $14,000

Total no. of coupons payment during the period = 20

So, here Rate = 5%, Nper = 20, Pmt = $14,000, FV = $560,000, Type = 0 (Since coupon payment will be after 6 months i,e. end of the period)

So, Issue price of the bonds is calculated as below :

=PV(5%,20,14000,560000,0)

= $385,529

2. Effective Interest amortization table

Period	Op. Balance	Interest @ 5%	Coupon Payment	Cl. Balance
1	$       385,529	$               19,276	$                    -14,000	$       390,805
2	$       390,805	$               19,540	$                    -14,000	$       396,346
3	$       396,346	$               19,817	$                    -14,000	$       402,163

3.

Date	Particulars	Debit	Credit
March 31, 2019	Cash	$       385,529
	Discount on issue of bonds	$       174,471
	Bonds Payable		$       560,000
	(Bonds issued at discount)
Sept 30, 2019	Interest Expense	$         19,276
	Discount on issue of bonds		$            5,276
	Cash		$         14,000
	(Interest Expense recognised)
March 31, 2020	Interest Expense	$         19,540
	Discount on issue of bonds		$            5,540
	Cash		$         14,000
	(Interest Expense recognised)
Sept 30, 2020	Interest Expense	$         19,817
	Discount on issue of bonds		$            5,817
	Cash		$         14,000
	(Interest Expense recognised)