Question

USE PROBLEM #1 TO ANSWER QUESTIONS 1 THRU 7 BELOW PROBLEM #1: Bonds payable FACTS: Number of bonds Par value of each bond Stated interest rate Issue date Due date Call % Called on 1,000 Effective interest rate 1,000 Interest Paid Per Year 4% Payment dates 171120X2 12/31/20X6Years to maturity 707% 1/1/X6 January 1st July 1st 5 Additional Facts: Bonds called on Called at Years after issue 1/1/20X6 101% Additional Facts: Bonds called on Called at Years after issue 1/1/20X6 101% USE STRAIGHT LINE AMORTIZATION FOR THE GAIN OR LOSS CALCULATIONS.

Answer 1

3)
Bonds price = half year cash interest * PVIFA(3%,10) + Par value * PVIF(3%, 10)
(1000000*2%) * PVIFA(3%,10) + 1000000 * PVIF(3%,10)
20000*8.5302 + 1000000*0.7441=914704
Discount on issue of bond = 1000000 - 914704 = 85296
Half yearly amortisation amount = 85296/10 = 8529.60
So, Interest expense at the second interest payment = Cash interest + amortisation amount
20000 + 8529.60 = $28529.60