Question

On June 30, 2018, Singleton Computers issued 8% stated rate bonds with a face amount of $200 million. The bonds mature on June 30, 2033 (15 years). The market rate of interest for similar bond issues was 7% (3.5% semiannual rate). Interest is paid semiannually (4.0%) on June 30 and December 31, beginning on December 31, 2018. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Determine the price of the bonds on June 30, 2018.
2. Calculate the interest expense Singleton reports in 2018 for these bonds using the effective interest method.

Determine the price of the bonds on June 30, 2018. (Enter your answers in whole dollars. Round percentage answers to one decimal place. Round your final answers to nearest whole dollar amount.)

	Table values are based on: n = i = Cash Flow Amount Present Value Interest Principal Price of bonds

Calculate the interest expense Singleton reports in 2018 for these bonds using the effective interest method. (Enter your answers in whole dollars. Round your final answers to nearest whole dollar amount.)

	Period-End Cash Interest Paid Bond Interest Expense Premium Amortization Carrying Value 06/30/2018 12/31/2018

Answer 1

Table values are based on:
n=	30
i=	3.5%
Cash Flow	Amount	Present Value
Interest	$200 mill*4% =$8 million	$8 million*PVAF(3.5%,30) =$8 million*18.39204 =$147.13632 million
Principal	$200 mill	$200 million*PVIF(3.5%,30) =$200 mill*0.35628 =$71.256 million
Price of Bonds		$218.39232 million
Date	Interest Payment($200 mill*4%)	Interest expenses @3.5%	Premium amorrtization	Bond carrying amount
30-Jun-18				218.39232
31-Dec-18	8	7.6437312	0.3562688	218.036051
Note:All amounts are in million