On January 1, 2013, Queen Corporation issued 12-year, 6% bonds payable with a face value of...

On January 1, 2013, Queen Corporation issued 12-year, 6% bonds payable with a face value of $10 million. The bonds require semi-annual coupon payments on June 30 and December 31 every year. Fill in the blanks below to show the amounts and timing for contractual future cash flows for these bonds.

Lump-sum payment due at maturity (FV) = _________

Amount of each semi-annual coupon payment (pmt) = ________

Number of compounding periods from issue date to maturity = _________

Total cash outflows required by these bonds = ___________

For this question, fill in the blanks below with the value of Queen’s bonds on 1/1/13. The value represents the cash proceeds that Queen would receive when issuing these bonds.

(Annual) Market interest rate = 5% _____________

(Annual) Market interest rate = 8.3% ______________

Quoted market price = 92 ________________

For this question, assume that Queen issued these bonds on 1/1/13 in exchange for cash of $8,899,162. For the journal entries, you may choose to use a companion account or not.

Did Queen issue these bonds at par, premium, or discount?

What was the market interest rate PER PERIOD on 1/1/13? Prepare Queen’s journal entry to recognize the issuance of these bonds on 1/1/13.

Prepare Queen’s journal entry to recognize the coupon payment on 6/30/13. Explain in words how you calculated the interest expense amount in your 6/30/13 journal

Solutions

Expert Solution

Answers are as shown below:

Lump-sum payment due at maturity (FV) = _________	$10 million

Amount of each semi-annual coupon payment (pmt) = ________	0.30 million	106%6/12

Number of compounding periods from issue date to maturity = _________	24	12*2

Total cash outflows required by these bonds = ___________	10.3 million

For this question, fill in the blanks below with the value of Queen’s bonds on 1/1/13. The value represents the cash proceeds that Queen would receive when issuing these bonds.
.
(Annual) Market interest rate = 5% _____________	10,894,249.29
.
(Annual) Market interest rate = 8.3% ______________	8,273,220.19
.
Quoted market price = 92 ________________	9,200,000.00

Working:

Table value are based on:
n=24
i= 2.5%
Cash Flow	Table Value	Amount	Present Value
Par (maturity value)	0.55288	10,000,000	5,528,753.54
Interest (annuity)	17.88499	300,000.0	5,365,495.75
			10,894,249.29

Table value are based on:
n=24
i= 4.15%
Cash Flow	Table Value	Amount	Present Value
Par (maturity value)	0.37686	10,000,000	3,768,577.21
Interest (annuity)	15.01548	300,000.0	4,504,642.98
			8,273,220.19

Bonds are issued at a discount.

ekkarill92 answered 1 year ago

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