On January 1, 2021, Marigold Co. issued ten-year bonds with a face value of $4,200,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are: Present value of 1 for 10 periods at 10% 0.386 Present value of 1 for 10 periods at 12% 0.322 Present value of 1 for 20 periods at 5% 0.377 Present value of 1 for 20 periods at 6% 0.312 Present value of annuity for 10 periods at 10% 6.145 Present value of annuity for 10 periods at 12% 5.650 Present value of annuity for 20 periods at 5% 12.462 Present value of annuity for 20 periods at 6% 11.470
1- Calculate the issue price of the bonds.
2-Without prejudice to your solution in part (a), assume that the issue price was $3,712,800. Prepare the amortization table for 2021, assuming that amortization is recorded on interest payment dates using the effective-interest method.
Solution 1:
Computation of bond price | |||
Table values are based on: | |||
n= | 20 | ||
i= | 6.00% | ||
Cash flow | Table Value | Amount | Present Value |
Par (Maturity) Value | 0.31180 | $4,200,000.00 | $1,309,560 |
Interest (Annuity) | 11.46992 | $210,000.00 | $2,408,683 |
Price of bonds | $3,718,243 |
Solution 2:
Bond Amortization Schedule | |||||
Period | Cash Paid | Interest Expense | Discount Amortized | Unamortized Discount | Carrying Value |
1-Jan-21 | $487,200 | $3,712,800 | |||
30-Jun-21 | $210,000 | $222,768 | $12,768 | $474,432 | $3,725,568 |
31-Dec-21 | $210,000 | $223,534 | $13,534 | $460,898 | $3,739,102 |
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