Question

PLEASE HELP ME WITH THIS I APPRECIATE YOU

The company issues 7% 5-year bonds with a total face amount of

$1,000,000 with interest paid semi-annually. The market rate of

interest is 7.2%.

n

%

PV

PVA

5

7.00%

0.71299

4.1002

5

7.20%

0.70636

4.0783

10

3.50%

0.70892

8.3166

10

3.60%

0.70211

8.2748

ROUND ANSWERS TO NEAREST DOLLAR

1. What is the issue price of the bond? $_______

2. Record the issuance of the bond:

3. What is the interest expense for the first interest payment? $_____

4. What is the bond liability after the first interest payment? $_______

5. What is the interest expense for the second interest payment? $___

Answer 1

Solution 1:

Computation of bond price
Table values are based on:
n=	10
i=	3.60%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.70211	$1,000,000.00	$702,110
Interest (Annuity)	8.27480	$35,000.00	$289,618
Price of bonds			$991,728

Solution 2:

Journal Entries
Date	Particulars	Debit	Credit
1-Jan	Cash Dr	$991,728.00
	Discount on issue of bond Dr	$8,272.00
	To Bond Payable		$1,000,000.00
	(To record issue of bond at discount)

Solution 3:

Interest expense for first interest payment = $991,728 * 3.60% = $35,702

Solution 4:

Bond liability after the first interest payment = $991,728 + $35,702 - $35,000 = $992,430

Solution 5:

interest expense for the second interest payment = $992,430 * 3.60% = $35,727