Question

The Simpkins II Corporation issued a 5-year $800,000 bond at a coupon rate of 8% on January 1, 2018. Interest is paid semi-annually on June 30 and December 31 of each year. The market yield for bonds of similar risk and maturity is 10%.

Required:

A. Is this a premium or discount bond?

B. Determine the price of the bond (using Present Value Tables)

C. Determine the total amount of interest expense for this bond at maturity (prior to making the table)

D. Prepare the complete Bond Amortization Table for this bond to maturity

E. Prepare the Journal Entries for the date of issuance, first interest payment, and at maturity (make certain to include the date for each entry)

Answer 1

	Face Value		$        800,000
	Annual Coupon Rate		8%
	Annual Required return		10%
	Years to Maturity		5
	Payment Frequency		2
	Value of Bond		$738,226
Ans.(a)	This a discount bond.
Ans.(b)	Price of bond $738,226 (using Present Values)
Ans.(c)	Total Bond Interest Expense over life of bonds:
	Amount Repaid:
	6 Paymnets of $ 32,000			192000
	Par value at Maturity			800000
	Total Repaid			$         992,000
	Less: Amount Borrowed			738226
	Total bond interest expense			$         253,774
Ans.(d)	Date	Interest Payment	Interest Expense	Discount Amortisation	Unamortised Discount	Carrying Value
	01-01-18				$   61,774.00	$ 738,226.00
	6/30/18	$    32,000	$    36,911.30	$     (4,911.30)	$   56,862.70	$ 743,137.30
	12/31/18	$    32,000	$    37,156.87	$     (5,156.87)	$   51,705.84	$ 748,294.17
	6/30/19	$    32,000	$    37,414.71	$     (5,414.71)	$   46,291.13	$ 753,708.87
	12/31/19	$    32,000	$    37,685.44	$     (5,685.44)	$   40,605.68	$ 759,394.32
	6/30/20	$    32,000	$    37,969.72	$     (5,969.72)	$   34,635.97	$ 765,364.03
	12/31/20	$    32,000	$    38,268.20	$     (6,268.20)	$   28,367.77	$ 771,632.23
	6/30/21	$    32,000	$    38,581.61	$     (6,581.61)	$   21,786.15	$ 778,213.85
	12/31/21	$    32,000	$    38,910.69	$     (6,910.69)	$   14,875.46	$ 785,124.54
	6/30/22	$    32,000	$    39,256.23	$     (7,256.23)	$      7,619.23	$ 792,380.77
	12/31/22	$    32,000	$    39,619.04	$     (7,619.04)	$              0.20	$ 799,999.80
	Totals	$ 320,000	$        381,774	$   (61,773.80)
Ans.(e)	Date	Accounts and Titles			Dr.($)	Cr.($)
	Jan/1/2018	Cash			738,226
		Discount on Bonds Payable			61,774
		To Bonds Payable				800,000
		(To record issue of Bonds)
	Jun/30/2018	Interest Expense			36,911.30
		To Cash				32,000.00
		To Discount on bonds Payab;e				4,911.30
		(To record first interest payment)
	Dec/31/2022	Bond Payable			800,000
		To Cash				800,000
		(To record payment of face value at maturity)