In: Accounting
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 $________________.
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) | ||