In: Accounting
On January 1, 2020, Timmy Corporation issues bonds to the investing public. The stated (contractual) rate of interest is 5.5%. The market rate of interest on this issue date is 5%. The bonds have a face value of $1,000,000 and are issued at $1,115,000. Interest is paid every January 1. On this date, this market rate of interest is 5.1% How much interest will be paid on January 1, 2021?
Face Value | $ 1,000,000.00 | |||
Coupon Rate | 5.50% | |||
Coupon Payment | 55000 | |||
Carrying Value | $ 1,115,000.00 | |||
Date | Coupon Payment | Interest Exp. | Reduction in Bonds Payable bal. | Carrying Value |
1-Jan-20 | $ 1,115,000.00 | |||
1-Jan-20 | $ 55,000.00 | $ 55,750.00 | $ 750.00 | $ 1,114,250.00 |
1-Jan-21 | $ 55,000.00 | $ 56,826.75 | $ 1,826.75 | $ 1,112,423.25 |
Interest will be paid on January 1, 2021 (1114250 x 5.1%) | $ 56,826.75 |