Kauffman Associates issued $1,000,000 par value, 4-year, zero-coupon bonds on Ja
ID: 2815951 • Letter: K
Question
Kauffman Associates issued $1,000,000 par value, 4-year, zero-coupon bonds on January 1, 2018 The market rate of interest on the date of the bond issue was 5% Bond issue costs are $3,201 The company's fiscal year ends on December 31. Read the requirements Requirement a. Determine the issue price of the debt. (Use a financial calculator or a spreadsheet for your calculations. Round your final answer to the nearest whole dollar.) The issue price of the debt is s Requirement b. Find the effective interest rate after considering bond issue costs. Prepare the amortization table for the bond issue assuming that Kauffman uses the Firs,find the effective interest rate after considering bond issue costs (Use a financial calculator or a spreadsheet for your calculations effective interest rate method of amortization Round your answer to four decimal places) [ -% The effective interest rate after considering bond issue costs is Prepare the amortization table for the bond issue assuming that Kauffman uses the effective interest rate method of amortization Complete all answer boxes Enter a "o for any zero balances, Use an interest rate rounded to four decimal x xxx%, when completing the table Round each calculation to the nearest whole number and then use the rounded value for eath subsequent calculation in the table.) Cash Effective Carrying Discount/Premium Amortization Date Interest Interest Value January 1, 2018 December 31, 2018 December 31, 2019 Choose tom any ist or enter any number inthe nput felds and then continue to the noxt queston.Explanation / Answer
Requirement a
The issue price of the debt is $ 823,000
Calculted as follows:
PV factor for 4 years @ 5% is 0.823
PV for the bond value = 1000000 x 0.823 = 823,000
*Bond issue costs of $ 3,201 will be recorded seperately in a contra liability account called Bond Issue Cost account and the amount will be ammortized over the life of the bond period. In other words this amount will be systematicaly moved from the balance sheet to the income statement.
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