ACG 2021 Lecture Notes - Lecture 18: Effective Interest Rate, Market Price, Interest Rate
Get access
Related Documents
Related Questions
Bringham Company issues bonds with a par value of $800,000 on their stated issue date. The bonds mature in 10 years and pay 6% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 8%. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.)
What is the amount of each semiannual interest payment for these bonds?
How many semiannual interest payments will be made on these bonds over their life?
Use the interest rates given to select whether the bonds are issued at par, at a discount, or at a premium.
|
Compute the price of the bonds as of their issue date.
|
Prepare the journal entry to record the bonds’ issuance.
1- Record the issue of bonds with a par value of $800,000 for cash.
(a) On 1/1/2015, Shocker Company issued $100,000 face valuebonds. The stated rate for these bonds is 10%, and the interest ispaid semi-annually, on June 30 and December 31. The market rate onthe date of issue was 12%. Bonds mature in three years, on December31, 2017. Required In the table provided, write the amount of thepayment, and the date of all payments that must be made by ShockerCompany to bond holders. Date Amount Date Amount
Date | Amount |
(b) On 1/1/2015, Sooner Company issued $100,000face value bonds that make semi-annually on June 30 and December31. The coupon rate is 10% and each semi-annual payment is $5,000.The market rate on the date of issue was 8%. Bonds mature in fiveyears, on December 31, 2019.
Required
On the date of issue, calculate the market price of the bond andrecord journal entry for the issuance of the bond. Showcalculations.
(b)answer for Sooner Company here:
Market Price of the bond on 1/1/2015 is:
Journal entry to be recorded on 1/1/2015:
Calculations for Sooner Company:
Number of period = ___ discount rate to be used = ___ %
Market Price of the bonds:
=
=
(c) On 1/1/2015, Gator Companyissued $200,000 face value bonds that mature in five years, onDecember 31, 2019. The bonds have stated rate of 10%, withsemi-annual payments, on June 30 and December 31. The market rateon the date of issue was 9%, and the bonds were sold for$207,913.
Required
In the amortization table provided, complete the entries for thedates indicated. Write journal entries to be recorded on 6/30/2015and 12/31/2015.
Date | Cash Interest Paid | Interest Expense | Increase/decrease in Outstanding Balance | Outstanding Balance |
1/1/2015 | ||||
6/30/2015 | ||||
12/31/2015 |