On January 1, 2014, Sidewinder, Inc. issued a 5-year bonds with a face value of

Question

On January 1, 2014, Sidewinder, Inc. issued a 5-year bonds with a face value of $100,000 and an annual stated interest rate of 10%. Interest payments are made semi-annually on June 30 and December 31st. The bonds were issued for $92,640, when the market rate of interest was 12%.

1) How much interest must Sidewinder, Inc. pay on June 30, 2014?

2) How much interest expense does Sidewinder record for six months July 1-December 31, 2014?

3) What is the book value of bonds payable, after the third semi-annual interest payment (i.e. the final balance on June 30, 2015)?

Explanation / Answer

Sidewinder Inc Details Amt $ Bond Face value               100,000 Bond Issue value                  92,640 Discount amount                    7,360 Bond duration in months                          60 Discount Amortization per month                  122.67 Interest payable per six months                    5,000 1 Interest payble on June 30. 2014. will be 5% 0n $100,000 face value = $          5,000.00 2 Interest Expense for Jul 1-Dec31. 2014. Interest payable for six months =                    5,000 Plus Discount amortized for six months =                        736 Total Interest Expense to be recorded                    5,736 Book Value on Jun30. 2015. Bond Payable credit Balance               100,000 Discount on Bonds Payable Debit balance                  (7,360) Discount on Bonds Payable credit balance for 18 months discount amortization                    2,208 3 Bond Payable A/c Net Book Balance on Jun 30. 2015. =                  94,848

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