Question

Sun City issues $53 million of bonds on January 1, 2021 that pay interest semiannually on June 30 and December 31. A portion of the bond amortization schedule appears below:

	Cash	Interest	Decrease in	Carrying
Date	Paid	Expense	Carrying Value	Value
01/01/2021				$	63,490,170
06/30/2021	$2,650,000	$2,539,607	$110,393		63,379,777
12/31/2021	2,650,000	2,535,191	114,809		63,264,968

Required:
1. Were the bonds issued at face amount, a discount, or a premium?

• Premium

• Face amount

• Discount

2. What is the original issue price of the bonds?

3. What is the face amount of the bonds?

4. What is the stated annual interest rate? (Hint: Be sure to provide the annual rate rather than the six-month rate.)

5. What is the market annual interest rate? (Hint: Be sure to provide the annual rate rather than the six-month rate.)

6. What is the total cash paid for interest assuming the bonds mature in 20 years?

Answer 1

1.Were the bonds issued at face amount, a discount, or a premium?-
Ans:	Premium
	The Carrying value is more than the face value. It shows that the bonds were issued at premium.
2. What is the original issue price of the bonds?-
Ans:	$               63,490,170
	The Carrying value on 01/01/2021 is issue price of bonds.
3. What is the face amount of the bonds?
Ans:	$               53,000,000
4. What is the stated annual interest rate?
Ans:	((2650000+2650000)/53000000)*100   =		10%
5. What is the market annual interest rate?
Ans:	((2,539,607+2,535,191)/63,490,170 *100   =		8%
6. What is the total cash paid for interest assuming the bonds mature in 20 years?
Ans:	Interest per year	2650000+2650000 =	$                                    5,300,000
	Total Cash Interest paid for 20 years	$5300000*20 =	$                               106,000,000

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Thank you.