Question

please complete both required parts of the question

Exercise 5-17 (Algo) Price of a bond; interest expense (LO5-9,5-10) On June 30, 2021, Singleton Computers issued 6% stated rate bonds with a face amount of $300 million. The bonds mature on June 30, 2036 (15 years). The market rate of interest for similar bond issues was 4% (2.0% semiannual rate). Interest is paid semiannually (3.0%) on June 30 and December 31, beginning on December 31, 2021. (FV of $1. PV of $1, FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1 (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds on June 30, 2021 2. Calculate the interest expense Singleton reports in 2021 for these bonds using the effective interest method. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the price of the bonds on June 30, 2021. (Enter your answers in whole dollars. Round percentage answers to one decimal place. Round your final answers to nearest whole dollar amount.) Table values are based on: Cash Flow Amount Present Value Interest Principal Price of bonds Required 2 >

Answer 1

	Face Value of Bonds	=	$300,000,000
	Life of Bonds (in years)	=	15
	Maturity amount of Bonds		$300,000,000
	Coupon rate	=	6% per year payable semi annually i.e. 3% per semi annual
	Semi annual Coupon Amount	=	$300,000,000	×	3.00%
		=	$9,000,000		This will be paid 30 times
	n	=	15 years * 2 = 30 semi annuals
1	Computation of price of the bonds at June 30, 2021:-
	Market rate on similar Notes (r)	=	4% p.a.
		=	2% per semi annual
	PVAF(r, n)	=	Present Value Annuity factor at r% for n periods
	Present Value of an Annuity of $1 at 2% for 30 periods	=	22.39646
	PVIF(r, n)	=	Present Value interest factor at r% for n periods
	Present Value of $1 at 2% at n= 30 periods	=	0.55207
	Price of Bond	=	Coupon Amount * PVAF(r,n)	+	Maturity Amount * PVIF(r,n)
	Table values are based on:
	n =	30
	r =	2%
	Cash Flow	Table Value	Amount		Present value
		a	b		c = a*b
	Interest (annuity)	22.39646	$9,000,000		$201,568,140
	Principal (maturity) value	0.55207	$300,000,000		$165,621,000
	Price of bonds				$367,189,140
2	Effective Interest Amortization Table :-
	Schedule of Interest Expense and Bond Discount Amortization
	Effective Interest Method
	Date	Cash Interest Paid (3%)	Bond Interest Expense (2%) (Beginning Carrying Value*2%)		Premium Amortization   (Cash Payment - Interest Expense)	Carrying Value
	a	b	c		d = b-c	e = Beginning Carrying Value - d
	06/30/2021					$           367,189,140
	12/31/2021	$                            9,000,000	$                                           7,343,783		$                                       1,656,217	$           365,532,923

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