Homework Answers
| Par value of bonds | $800,000 | |||
| Annual interest payment | 6% | |||
| semi annual interest payment | (800,000*6%)/2 | |||
| Period | Cashflow | Present value | Calculation | |
| 1 | $24,000 | $23,077 | (24000/(1.04)^1 | |
| 2 | $24,000 | $22,189 | (24000/(1.04)^2 | |
| 3 | $24,000 | $21,336 | (24000/(1.04)^3 | |
| 4 | $24,000 | $20,515 | (24000/(1.04)^4 | |
| 5 | $24,000 | $19,726 | (24000/(1.04)^5 | |
| 6 | $24,000 | $18,968 | (24000/(1.04)^6 | |
| 7 | $24,000 | $18,238 | (24000/(1.04)^7 | |
| 8 | $24,000 | $17,537 | (24000/(1.04)^8 | |
| 9 | $24,000 | $16,862 | (24000/(1.04)^9 | |
| 10 | $24,000 | $16,214 | (24000/(1.04)^10 | |
| 11 | $24,000 | $15,590 | (24000/(1.04)^11 | |
| 12 | $24,000 | $14,990 | (24000/(1.04)^12 | |
| 13 | $24,000 | $14,414 | (24000/(1.04)^13 | |
| 14 | $24,000 | $13,859 | (24000/(1.04)^14 | |
| 15 | $24,000 | $13,326 | (24000/(1.04)^15 | |
| 16 | $24,000 | $12,814 | (24000/(1.04)^16 | |
| 17 | $24,000 | $12,321 | (24000/(1.04)^17 | |
| 18 | $24,000 | $11,847 | (24000/(1.04)^18 | |
| 19 | $24,000 | $11,391 | (24000/(1.04)^19 | |
| 20 | $824,000 | $376,063 | (824000/(1.04)^20 | |
| $691,277 | ||||
| 1 | Hence, Issue price of the bond is $ 691,277 | |||
| 2 | ||||
| Account titles and explanation | Debit | Credit | ||
| Cash | $691,277 | |||
| Discount on issue of bonds | $108,723 | |||
| Bonds payable | $800,000 | |||
| (Bond issued at discount) | ||||
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