On June 30, 2018, Singleton Computers issued 6% stated rate bonds with a face amount of...

On June 30, 2018, Singleton Computers issued 6% stated rate bonds with a face amount of $200 million. The bonds mature on June 30, 2033 (15 years). The market rate of interest for similar bond issues was 5% (2.5% semiannual rate). Interest is paid semiannually (3%) on June 30 and December 31, beginning on December 31, 2018. (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, 2018. 2. Calculate the interest expense Singleton reports in 2018 for these bonds using the effective interest method.

Required 1

Determine the price of the bonds on June 30, 2018. (Enter your answers in whole dollars. Round percentage answers to one decimal place. Round your final answers to nearest whole dollar amount.)

Table values are based on:
n =	30
i =	2.5%
Cash Flow	Amount	Present Value
Interest
Principal
Price of bonds

Required 2

Calculate the interest expense Singleton reports in 2018 for these bonds using the effective interest method. (Enter your answers in whole dollars. Round your final answers to nearest whole dollar amount.)

Period-End	Cash Interest Paid	Bond Interest Expense	Premium Amortization	Carrying Value
06/30/2018
12/31/2018			$0	0

Solutions

Expert Solution

Face Value of Bonds	200,000,000
Stated rate of interest	6%
Market rate of interest	5%
Interest Semi annually @3%	6,000,000
Annuity factor at 2.5% for 30 Periods	20.93029
Present value factor at 2.5% for 30 Periods	0.47674
Present value of Interest	$ 125,581,740.00
Present value of Maturity amount	$ 95,348,000.00
Issue price	$ 220,929,740.00

Table values are based on:
n =	30	20.93029
i =	2.50%	0.47674
Cash Flow	Amount	Present Value
Interest	$6,000,000	$125,581,740
Principal	$200,000,000	$95,348,000
Price of bonds		$220,929,740

Period-End	Cash Interest Paid	Bond Interest Expense	Premium Amortization	Carrying Value
06/30/2018				$ 220,929,740
12/31/2018	6000000	$5,523,244	$ 476,757	$ 220,452,984
Interest expense of 2018: ($220,929,740*2.5%)= $ 5523,244

ekkarill92 answered 3 months ago

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