On January 1, 2011, Piper Co. issued 10-year bonds with a face value of $1,000,0

Question

On January 1, 2011, Piper Co. issued 10-year bonds with a face value of $1,000,000 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% .386 Present value of 1 for 10 periods at 12% .322 Present value of 1 for 20 periods at 5% .377 Present value of 1 for 20 periods at 6% .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 Instructions: - Calculate the issue price of the bonds.(finished) - Without prejudice to your solution in Part (a), assume that the issue price was $884,000. Prepare the amortization table for 2011, assuming that amortization is recorded on interest payment dates.

Explanation / Answer

(a) .312 × $1,000,000 =       $312,000

      11.470 × $50,000     =       573,500

                                                $885,500

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(b) Date             Cash             Expense                Amortization        Carrying Amount

      1/1/11                                                                                                     $884,000

      6/30/11          $50,000             $53,040                     3,040                       887,040

      12/31/11          50,000               53,222                     3,222                       890,262

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