Question

Coney Island Entertainment issues $1,600,000 of 6% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. Calculate the issue price of a bond and complete the first three rows of an amortization schedule when:

2. The market interest rate is 7% and the bonds issue at a discount. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

3. The market interest rate is 5% and the bonds issue at a premium. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

Answer 1

Answer-2:

Bond Price = $96,000/2 * [1 - [1 / (1 + 0.07/2)^15*2]] / (0.07/2) + [$1,600,000 / ((1 + 0.07/2)^15*2) = $1,452,864

Amortization Schedule
Paymnt No.	Interest payment	Interest exp	amortization of bond dis	Bal. in bond dis	Bond payable	Carrying value of bond
0				$   147,136	$   1,600,000	$             1,452,864
1	$         48,000	$      50,850	$           2,850	144,286	1,600,000	1,455,714
2	48,000	$      50,950	$           2,950	141,336	1,600,000	1,458,664
3	48,000	$      51,053	$           3,053	138,283	1,600,000	1,461,717

Answer-3:

Bond Price = $96,000/2 * [1 - [1 / (1 + 0.05/2)^15*2]] / (0.05/2) + [$1,600,000 / ((1 + 0.05/2)^15*2) = $1,767,442

Amortization Schedule
Paymnt No.	Interest payment	Interest exp	amortization of bond premium	Bal. in bond premium	Bond payable	Carrying value of bond
0				$   167,442	$   1,600,000	$             1,767,442
1	$         48,000	$      44,186	$           3,814	163,628	1,600,000	1,763,628
2	48,000	$      44,091	$           3,909	159,719	1,600,000	1,759,719
3	48,000	$      43,993	$           4,007	155,712	1,600,000	1,755,712