On January 1, 2020, Timmy Corporation issues bonds to the investing public. The stated (contractual) rate...

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?

Expert Solution

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

ekkarill92 answered 2 years ago

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