Question

On January 1, 2017 Nowell Company issued $200,000 in bonds that mature in ten years. The bonds have a stated interest rate of 6% and pay interest on June 30 and December 31 each year.

1. The bonds were issued at face value.

2. The bonds were issued when the market rate of interest was 5% and sold for $215,589

		Face Value	Premium
Total Interest Expense
Interest Expense	2017
	2018
Total Cash Inflows
Total Cash Outflows
Cash Outflows year 2017
Cash Outflows year 2018

Answer 1

		Face Value	Premium
Total Interest Expense
Interest Expense	2017	$   12,000.00	$   10,441.10
	2018	$   12,000.00	$   10,441.10
Total Cash Inflows		$2,00,000.00	$2,15,589.00
Total Cash Outflows
Cash Outflows year 2017		$   12,000.00	$   12,000.00
Cash Outflows year 2018		$   12,000.00	$   12,000.00

Bond issue price	$    2,15,589.00
Face value	$    2,00,000.00
Premium on bond	$        15,589.00
Number of Interest payments (10 years )	10
Premium to be amortized per payment	$          1,558.90
Interest on bond (200000 x 6%)	$        12,000.00

Although interest will be paid twice a year and similarly premium amortization will be done twice a year.