Question

Hopkins Ltd. issued five-year bonds with a face value of $150,000 on January 1. The bonds have a coupon interest rate of 6% and interest is paid semi-annually on June 30 and December 31. The market interest rate was 7% when the bonds were issued at a price of 96 Using above information, determine the proceeds received by the company when the bonds were issued. Proceeds from issue of the bonds LINK TO TEXT Determine the interest expense recorded for the six months ending June 30 when the first interest payment is made. Interest expense LINK TO TEXT Determine the balance in the Bonds Payable account immediately following the first interest payment. Balance in bonds payable account

Answer 1

Solution 1:

Proceeds from issue of bonds = Face value *96% = $150000*96% = $144,000

Solution 2:

Interest expense at June 30 = Bond proceeds *market rate *6/12 = $144000*7%*6/12 = $5,040

Solution 3:

Discount amortized at first semi annual period = Interest expense - cash paid for interest

= $5040 - ($150000*6%*6/12) = $540

Balance in bond payable account = $144000 + $540 = $144,540