In: Accounting
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?
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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