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Carla Vista Co. sold $3,290,000, 10%, 10-year bonds on January 1, 2022. The bonds were dated January 1, 2022, and pay interest on January 1. The company uses straight-line amortization on bond premiums and discounts.Annual Interest Periods Interest to Be Paid Interest Expense to Be Recorded Premium Amortization Unamortized Premium 32900 Bo

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Answer #1

If bonds are issued at 101:

Face Value of Bonds = $3,290,000

Issue Value of Bonds = 101% * $3,290,000
Issue Value of Bonds = $3,322,900

Annual Coupon Rate = 10.00%
Annual Coupon = 10.00% * $3,290,000
Annual Coupon = $329,000

Premium on Bonds = Issue Value of Bonds - Face Value of Bonds
Premium on Bonds = $3,322,900 - $3,290,000
Premium on Bonds = $32,900

Time to Maturity = 10 years

Annual Amortization of Premium = Premium on Bonds / Time to Maturity
Annual Amortization of Premium = $32,900 / 10
Annual Amortization of Premium = $3,290

Annual Interest Expense = Annual Coupon - Annual Amortization of Premium
Annual Interest Expense = $329,000 - $3,290
Annual Interest Expense = $325,710

Unamortized Annual Interest Periods Interest to be Paid Interest Expense to be Recorded Bond Carrying Value Amortization Prem

If bonds are issued at 96:

Face Value of Bonds = $3,290,000

Issue Value of Bonds = 96% * $3,290,000
Issue Value of Bonds = $3,158,400

Annual Coupon Rate = 10.00%
Annual Coupon = 10.00% * $3,290,000
Annual Coupon = $329,000

Discount on Bonds = Face Value of Bonds - Issue Value of Bonds
Discount on Bonds = $3,290,000 - $3,158,400
Discount on Bonds = $131,600

Time to Maturity = 10 years

Annual Amortization of Discount = Discount on Bonds / Time to Maturity
Annual Amortization of Discount = $131,600 / 10
Annual Amortization of Discount = $13,160

Annual Interest Expense = Annual Coupon + Annual Amortization of Discount
Annual Interest Expense = $329,000 + $13,160
Annual Interest Expense = $342,160

Annual Interest Periods Interest to be Paid Interest Expense to be Recorded Discount Amortization Unamortized Discount Bond C

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