Question

In: Accounting

On January 1 st 2012, Everhart Corporation, a calendar year company issues $100,000, 5%, 5-year bonds...

On January 1 st 2012, Everhart Corporation, a calendar year company
issues $100,000, 5%, 5-year bonds dated January 1, 2012. The bond pays
interest semiannually on January 1 and July 1 . The bonds are issued
to yield 6%.

Solutions

Expert Solution

Answer:- The present value of bond investment = $96162.

Explanation-Calculation of selling price of bond at issuance=

                B0 =C/2 {1-(1+r/2)-2t}/ r/2 +F/(1+r/2)-2t

Where:-

Bo = Bond price

C= Coupon payment

r = Interest Rate

F= Face value

t = Years/Periods

Since the interest is paid semi-annually the bond interest rate per period is 2.5% (= 5%/ 2), the market interest rate is 3% (= 6%/ 2) and number of time periods are 10 (= 2*5). Hence, the price of the bond is calculated as the present value of all future cash flows as shown below:-

Price of Bond =2.5%*$100000*{1-(1+3%)-10/3%} +$100000/(1+3%)10

                         =($2500*8.5302)+ ($100000*0.7441)

                         = $21752+$74410

                         =$96162

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

. Collins Company issues term bonds with a face value of $100,000 on January 1, Year...
. Collins Company issues term bonds with a face value of $100,000 on January 1, Year One. The bonds have an annual stated rate of interest of 4 percent and a life of ten years. They pay interest semiannually on June 30 and December 31. The bonds were issued to yield an effective annual interest rate of 6 percent. The present value of $1 in 10 periods at a 4 percent interest rate is $0.67556, in 10 periods at 6...
Tano Company issues bonds with a par value of $100,000 on January 1, 2019. The bonds’...
Tano Company issues bonds with a par value of $100,000 on January 1, 2019. The bonds’ annual contract rate is 8%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 10%, and the bonds are sold for $94,923. 1. What is the amount of the discount on these bonds at issuance? 2. How much total bond interest expense will be recognized over...
The Mesino Corporation issues $80,000, 5%, 5-year bonds on January 1, for $83,200. Interest is paid...
The Mesino Corporation issues $80,000, 5%, 5-year bonds on January 1, for $83,200. Interest is paid semiannually on January 1 and July 1. If Mesino uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1 is a. $2,000 b. $4,000 c. $1,680 d. $3,360
Coronado Company issues $26000000, 5%, 5-year bonds dated January 1, 2017 on January 1, 2017. The...
Coronado Company issues $26000000, 5%, 5-year bonds dated January 1, 2017 on January 1, 2017. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 4%. What are the proceeds from the bond issue? Answers given: $27156209 $26000000 $27167784 $27160279
On January 1, 2012, Corporation A issued $18,000,000 of 10% ten-year bonds at 103. The bonds...
On January 1, 2012, Corporation A issued $18,000,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Corporation A at 105. Corporation A has recorded amortization of the bond premium on the straight line method. On December 31, 2018, when the fair value of the bonds was 96, Corporation A repurchased $4,000,000 if the bonds in the open market at 96. Corporation A has recorded interest and amortization for 2018. What amount of gain/loss(ignoring income...
On January 1, Hurley Corporation issues $2,500,000, 5-year, 12% bonds at 96 with interest payable on...
On January 1, Hurley Corporation issues $2,500,000, 5-year, 12% bonds at 96 with interest payable on July 1 and January 1. The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a debit to Interest Expense, $150,000. debit to Interest Expense, $300,000. credit to Discount on Bonds Payable, $10,000. credit to Discount on Bonds Payable, $20,000. A corporation issues $1,000,000,000, 10%, 5-year bonds on January 1, 2014, for...
On January 1, 2019 Lightfoot Corporation issues 10%, 5-year bonds with a face value of $275,000...
On January 1, 2019 Lightfoot Corporation issues 10%, 5-year bonds with a face value of $275,000 when the effective interest rate is 9%. Interest is to be paid semiannually on June 30 and December 31. Lightfoot uses the effective interest method to amortize the premium on June 30, 2019. Prepare the journal entry to record the first interest payment on June 30, 2019.
1. On January​ 1, 2019, Always Corporation issues $3,100,000​, 5−​year, 12​% bonds for $3,010,000. Interest is...
1. On January​ 1, 2019, Always Corporation issues $3,100,000​, 5−​year, 12​% bonds for $3,010,000. Interest is paid semiannually on January 1 and July 1. Always Corporation uses the straight−line method of amortization. The​ company's fiscal year ends on December 31. The amount of discount amortized on July​ 1, 2019​ is: 2. Williamson Company declared and distributed a​ 10% stock dividend when it had 900,000 shares of​ $1 par value common stock outstanding. The market price per share of common stock...
On January 1, 2016, Gates Corporation issued $100,000 of 5-year bonds due December 31, 2020, for...
On January 1, 2016, Gates Corporation issued $100,000 of 5-year bonds due December 31, 2020, for $103,604.79 minus debt issuance costs of $3,000. The bonds carry a stated rate of interest of 13% payable annually on December 31 and were issued to yield 12%. The company uses the effective interest method of amortization to amortize any discounts or premiums and the straight-line method to amortize the debt issuance costs. Required: Prepare the journal entries to record the issuance of the...
On January 1, 2016, Gates Corporation issued $100,000 of 5-year bonds due December 31, 2020, for...
On January 1, 2016, Gates Corporation issued $100,000 of 5-year bonds due December 31, 2020, for $103,604.79 minus debt issuance costs of $3,000. The bonds carry a stated rate of interest of 13% payable annually on December 31 and were issued to yield 12%. The company uses the effective interest method of amortization to amortize any discounts or premiums and the straight-line method to amortize the debt issuance costs. Required: Prepare the journal entries to record the issuance of the...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT