Question
In: Accounting
Sun City issues $53 million of bonds on January 1, 2021 that pay interest semiannually on...
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?
Solutions
Expert Solution
| 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 | |||
Feel free to ask any clarification, if required. Kindly
provide feedback by thumbs up, if satisfied. It will be highly
appreciated.
Thank you.
ekkarill92 answered 1 year agoRelated Solutions
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(1)
(2)
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Payment
Effective
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Increase in
Balance
Outstanding
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7,041,478
1
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352,074
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352,678
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354,676
14,676
7,108,194
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340,000
355,410
15,410
7,123,604
~
~
~
~
~
~
~
~
~
~
~...
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For each of the following three separate situations, (a) determine
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(Use appropriate factor(s) from the tables provided. Round
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