Question

On September 1, 2019, RC Ltd. sold $10,000, 6% (payable semi-annually each March 1 and September 1), 10-year bonds dated September 1, 2019, to yield 8%. RC Ltd. uses straight-line amortization. The accounting period ends December 31.

Required:
a) Were the bonds issued at a premium or a discount?
b) The sale price of the bond was $________________.
c) Interest expense for 2019, was $________________.

Answer 1

a)	Bonds are issued as discount	(Because market rate is higher tha coupan rate)
b)	Sale price of bond is	8,641
Semiannual	Cash Interest payment/Maturity value	PV Factor @8%	Present Value
1	300	0.961538	288
2	300	0.924556	277
3	300	0.888996	267
4	300	0.854804	256
5	300	0.821927	247
6	300	0.790315	237
7	300	0.759918	228
8	300	0.73069	219
9	300	0.702587	211
10	300	0.675564	203
11	300	0.649581	195
12	300	0.624597	187
13	300	0.600574	180
14	300	0.577475	173
15	300	0.555265	167
16	300	0.533908	160
17	300	0.513373	154
18	300	0.493628	148
19	300	0.474642	142
20	300	0.456387	137
20	10,000	0.456387	4,564
	Issue Value of Bond		8,641
c)	Interest Expense for 2019	230.43	(8641*8%/12*4)