Question

CASIO Corp. issued P500,000 face value bonds on January 1, 20x8. The bonds, which will mature on January 1, 20x11 pay interest of 12% every December 31. The bonds are issued to yield 10% interest. What is the carrying value of the bonds on December 31, 20x9?

Answer 1

Working Notes:
	CALCULATION OF ISSUE PRICE OF THE BOND
	Calculation of Semi Annual Coupon Payments
	Par value of the bond issued is   =		$500,000
	Annual Coupon %			12.00%
	Annual Coupon Amount			$60,000
	Number of years to maturity	3	Years
	Market rate of interest or Yield to Maturity or Required Return =	10%
	Year	Interest	Amount $	PVF of $ 1 @ 10%	Present Value
	1	Interest	$60,000	0.90909	$54,545.45
	2	Interest	$60,000	0.82645	$49,586.78
	3	Interest	$60,000	0.75131	$45,078.89
	3	Bond Principal Value	$500,000	0.75131	$375,657.40
		Total			$524,868.52
		Issue Price of the Bond		$524,868.52
SOLUTION :
	Schedule of Interest revenue and bond premium Amortization
	Effective interest Method
	Date	Cash Paid (A)	Interest Expenses @ 10 % on Carrying Amount(B)	Discount to be Amortized(A-B)	Caryying Amount
	Jan 01. 20X8	$                             -	$                                    -		$    524,868.52
	Dec 31. 20X8	$                    60,000	$                           52,487	$                        7,513	$          517,355
	Dec 31. 20X9	$                    60,000	$                           51,736	$                        8,264	$          509,091
	Dec 31. 20X10	$                    60,000	$                           50,909	$                        9,091	$          500,000
	Answer = Carrying Value of the Bonds on December 31. 20X9 = $ 509,091