Question

A firm issues its 5-year, 9%, $200,000 Par value bond. The market rate is 12%. The company uses the straight-line method to amortize bond premiums and discounts.  The bonds pay interest semi-annually.

Present Value Factor: 6%,  n=10

Annuity Present value factor is 7.36009

Single sum Present value factor is  0.55839

What is the bond price?

Record the sale of the bond

Record the first interest payment

Record the second interest payment  

Record the final payment of the Face Value

Prepare the amortization table

Answer 1

a)	bond price
	where i=6%
	time =10 years
	principal
	200,000	*	0.55839	=	111678
	Interest
	9000	*	7.36009	=	66241
	bond issue price				177919
b)	Account titles & Explanations				Debit	Credit
	Cash				177,919
	Discount on bonds payable				22,081
	Bonds payable					200,000
	interest expense				11,208
	Discount on bonds payable			(22081/10)		2,208
	cash					9,000
	interest expense				11,208
	Discount on bonds payable					2,208
	cash					9,000
	Bonds payable				200,000
	cash					200,000
	Amortization table
	period	interest	interest	discount	Carrying
		paid	expense	amortized	value
	0				177919
	30-Jun	9,000	11208	2208	180127
	31-Dec	9,000	11208	2208	182335
	30-Jun	9,000	11208	2208	184543
	31-Dec	9,000	11208	2208	186751
	30-Jun	9,000	11208	2208	188959
	31-Dec	9,000	11208	2208	191167
	30-Jun	9,000	11208	2208	193375
	31-Dec	9,000	11208	2208	195583
	30-Jun	9,000	11208	2208	197791
	31-Dec	9,000	11209	2209	200000