Question

Brief Exercise 10-14 Green Hills Ltd. issued five-year bonds with a face value of $140,000 on January 1. The bonds have a coupon interest rate of 5% and interest is paid semi-annually on June 30 and December 31. The market interest rate was 4% when the bonds were issued at a price of 113 Your answer is correct Using above information, determine the proceeds received by the company when the bonds were issued Proceeds from issue of the bonds 158200 LINK TΟ ΤΕXΤ correct Your answer Determine the interest expense recorded for the six months ending June 30 when the first interest payment is made. Interest expense 3164 $ LINK TΟ ΤΕXΤ Your answer is incorrect. Try again Determine the balance in the Bonds Payable account immediately following the first interest payment. Balance in bonds payable account $

Answer 1

Face Value of Bonds = $140,000

Issue Value of Bonds = 113% * $140,000
Issue Value of Bonds = $158,200

Annual Coupon Rate = 5.00%
Semiannual Coupon Rate = 2.50%
Semiannual Coupon = 2.50% * $140,000
Semiannual Coupon = $3,500

Annual Interest Rate = 4.00%
Semiannual Interest Rate = 2.00%

First Interest Payment:

Beginning Carrying Value = $158,200

Interest Expense = 2.00% * $158,200
Interest Expense = $3,164

Premium Amortized = $3,500 - $3,164
Premium Amortized = $336

Ending Carrying Value = $158,200 - $336
Ending Carrying Value = $157,864

Balance in bonds payable account after the first interest payment is $157,864