A firm issues its 5-year, 9%, $200,000 Par value bond. The market rate is 12%. T

Question

A firm issues its 5-year, 9%, $200,000 Par value bond. The market rate is 12%. The company uses the straight-line method to amortize bond premiums and discounts.  The bonds pay interest semi-annually.

Present Value Factor: 6%,  n=10

Annuity Present value factor is 7.36009

Single sum Present value factor is  0.55839

What is the bond price?

Record the sale of the bond

Record the first interest payment

Record the second interest payment  

Record the final payment of the Face Value

Prepare the amortization table

Explanation / Answer

a) bond price where i=6% time =10 years principal 200,000 * 0.55839 = 111678 Interest 9000 * 7.36009 = 66241 bond issue price 177919 b) Account titles & Explanations Debit Credit Cash 177,919 Discount on bonds payable 22,081 Bonds payable 200,000 interest expense 11,208 Discount on bonds payable (22081/10) 2,208 cash 9,000 interest expense 11,208 Discount on bonds payable 2,208 cash 9,000 Bonds payable 200,000 cash 200,000 Amortization table period interest interest discount Carrying paid expense amortized value 0 177919 30-Jun 9,000 11208 2208 180127 31-Dec 9,000 11208 2208 182335 30-Jun 9,000 11208 2208 184543 31-Dec 9,000 11208 2208 186751 30-Jun 9,000 11208 2208 188959 31-Dec 9,000 11208 2208 191167 30-Jun 9,000 11208 2208 193375 31-Dec 9,000 11208 2208 195583 30-Jun 9,000 11208 2208 197791 31-Dec 9,000 11209 2209 200000

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