Question

In: Accounting

Pool Corporation, Inc., is the world's largest wholesale distributor of swimming pool supplies and equipment. It...

Pool Corporation, Inc., is the world's largest wholesale distributor of swimming pool supplies and equipment. It is a publicly-traded corporation that trades on the NASDAQ exchange. The majority of Pool's customers are small, family-owned businesses. Assume that Pool issued bonds with a face value of $900,000,000 on January 1 of this year and that the coupon rate is 6 percent. At the time of the borrowing, the annual market rate of interest was 2 percent. The debt matures in 9 years, and Pool makes interest payments semiannually on June 30 and December 31. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round intermediate calculations and final answers to whole dollars.)

Required:

1. What was the issue price on January 1 of this year?

2. What amount of interest expense should be recorded on June 30 and December 31 of this year?

3. What amount of cash interest should be paid on June 30 and December 31 of this year?

4. What is the book value of the bonds on June 30 and December 31 of this year?

Expert Solution

Solution 1:

Computation of bond price
Table values are based on:
n=	18
i=	1.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.83602	$900,000,000.00	$752,418,000
Interest (Annuity)	16.39827	$27,000,000.00	$442,753,290

Price of bonds			$1,195,171,290

Solution 2:

Bond Amortization Schedule - Effective interest method
Period	Interest paid	Interest Expense	Premium amortization	Unamortized Premium	Carrying value
Issue date				$295,171,290	$1,195,171,290
1	$27,000,000	$11,951,713	$15,048,287	$280,123,003	$1,180,123,003
2	$27,000,000	$11,801,230	$15,198,770	$264,924,233	$1,164,924,233

Refer above amortization table,

Interest expense should be recorded on June 30 = $11,951,713

Interest expense should be recorded on Dec 31 = $11,801,230

Solution 3:

amount of cash interest should be paid on June 30 = $27,000,000

amount of cash interest should be paid on Dec 31 = $27,000,000

Solution 4:

book value of the bonds on June 30 = $1,180,123,003

book value of the bonds on Dec 31 = $1,164,924,233

ekkarill92 answered 1 year ago

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