In: Accounting
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.)
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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.)
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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 |