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 10 months ago

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