1. 2. On June 30, 2016, Singleton Computers issued 8% stated rate bonds with a f

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2.

On June 30, 2016, Singleton Computers issued 8% stated rate bonds with a face amount of $100 million. The bonds mature on June 30, 2031 (15 years). The market rate of interest for similar bond issues was 7% (3.5% semiannual rate). Interest is paid semiannually (4.0%) on June 30 and December 31, beginning on December 31, 2016. (FV of $1, PV of $1, FVA of $1. PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required 1. Determine the price of the bonds on June 30, 2016. Table values are based on: Cash Flow Amount Present Value Interest Principal Price of bonds 2. Calculate the interest expense Singleton reports in 2016 for these bonds using the effective interest method Period-End Cash Interes 06/30/2016 12/31/2016 t Bond InterestPremium Paid Expense Amortization Carrying Valu

Explanation / Answer

Solution:

Present value of bond = Present value of redeemable value + Present value of coupon payments Redeemable value 100 Coupon Payment   - 4 % * 100                                       4 Periods, 15* 2 years 30 Present value of redeemable value Redeemable value 100 PVIF @ 3.5 % for 30 years                               0.356 Present value of redeemable value                               35.63 Present value of coupon payment Coupon Payment   - 4 % * 100                                       4 PVAF @ 3.5 %   for 30 years                             18.390 Present value of coupon payment                               73.56 Present value of bond                             109.19

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