Question

On January 1, 2017, Arbor Corp issued $800,000 of 20-year, 11% bonds at market yield of 12% p.a. Interest is payable semiannually on June 30 and December 31. Compute the issue price of the bonds. Show the financial statements effects using the template for the following: 1) bond issuance, 2) semiannual interest payment and discount amortization on June 30, 2017, and 3) semiannual interest payment and discount amortization on December 31, 2017 Price of a bond is $739,814.81 How do you record this on a financial effects table > Cash+NonCash=Liab+Contributed Capital+Earned Capital

Answer 1

	Asset			=	Liabilities	+	equity
	cash	+	Non cash	=	Liabilities	+	contributed capital	+	Earned capital
1	739814.81				739814.81
2	-44000				388.89				-44388.89
3	-44000				412.22				-44412.22

Working:

Semiannual interest paid =par value *interest rate *n/12

                      = 800000 * .11*6/12

                       = 44000

Date	Interest expense	Interest paid	Discount amortized	carrying value at end
1/1/2017				739814.81
30/6/2017	739814.81*.12*6/12 = 44388.89	44000	388.89	739814.81+388.89= 740203.70
31/12/2017	740203.70*.12*6/12= 44412.22	44000	412.22	740203.70+412.22= 740615.92