Question

On January 1, 2017, Sheffield Corp. issued ten-year bonds with a face amount of $5800000 and a stated interest rate of 8% payable annually on January 1 . The bonds were priced to yield 10%. Present value factors are as follows: At 8% At 10% Present value of 1 for 10 periods 0.463 0.386 Present value of an ordinary annuity of 1 for 10 periods 6.710 6.145. The total issue price of the bonds was... 1. A company issues $ 16,800,000, 5.8%, 20-year bonds to yield 6% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $16,411,672. Using effective interest amortization, what amount of interest will be reported on the income statement for the year ending December 31, 2017? 2, 3. A company issues $16,800,000, 5.8%, 20-year bonds to yield 6% on January 1, 2017 Interest is paid on June 30 and December 31. The proceeds from the bonds are $16,411,672. Using effective interest amortization, what will the carrying value of the bonds be on the December 31,2018 balance sheet? Concord Corporation issues $25700000 face value of bonds at 97 on January 1, 2016. The bonds are dated January 1, 2016, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2019, S15420000 of the bonds are called at 103 plus accrued interest. What loss would be recognized on the called bonds on September 1,2019? 4.

Answer 1

Solution 1:

Computation of bond price
Table values are based on:
n=	10
i=	10.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.3860	$5,800,000	$2,238,800
Interest (Annuity)	6.1450	$464,000	$2,851,280
Price of bonds			$5,090,080

Solution 2:

Computation of interest expense to be reported in 2017 income statement
Date	Cash Payment	Interest expense	Discount Amortization	Bond Carrying Value
1-Jan-17				$16,411,672
30-Jun-17	$487,200	$492,350	$5,150	$16,416,822
31-Dec-17	$487,200	$492,505	$5,305	$16,422,127
Total		$984,855

Solution 3:

Computation of carrying value of bond
Date	Cash Payment	Interest expense	Discount Amortization	Bond Carrying Value
1-Jan-17				$16,411,672
30-Jun-17	$487,200	$492,350	$5,150	$16,416,822
31-Dec-17	$487,200	$492,505	$5,305	$16,422,127
30-Jun-18	$487,200	$492,664	$5,464	$16,427,591
31-Dec-18	$487,200	$492,828	$5,628	$16,433,218

Carrying value on Dec 31, 2018 Balance Sheet = $16,433,218N

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