Ellis issues 75%, five-year bonds dated January 1, 2015, with a $440,000 par val

Question

Ellis issues 75%, five-year bonds dated January 1, 2015, with a $440,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $468,152 The annual market rate is 6% on the issue date. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.) 1. Compute the total bond interest expense over the bonds' life Total bond interest expense over life of bonds Amount repaid payments of Par value at maturity Total repaid Less amount borrowed Total bond interest expense

Explanation / Answer

1 Amount repaid: 10 payments $16500 165000 Par value at maturity 440000 Total repaid 605000 Less: Amount borrowed 468152 Total bond interest expense 136848 2 semi-annual period end Cash Interest Bond Interest Premium Amortization Unamortized Premium Carrying value 1/1/2015 28152 468152 6/30/2015 16500 14045 2455 25697 465697 12/31/2015 16500 13971 2529 23167 463167 6/30/2016 16500 13895 2605 20562 460562 12/31/2016 16500 13817 2683 17879 457879 6/30/2017 16500 13736 2764 15116 455116 12/31/2017 16500 13653 2847 12269 452269 6/30/2018 16500 13568 2932 9337 449337 12/31/2018 16500 13480 3020 6317 446317 6/30/2019 16500 13390 3110 3207 443207 12/31/2019 16500 13296 3207 0 440000 Total 165000 136851 28152 3 Date Account title and explanation Debit Credit Interest expense 14045 Bond Premium 2455 Cash 16500 Interest expense 13971 Bond Premium 2529 Cash 16500 1 Amount repaid: 10 payments $16500 165000 Par value at maturity 440000 Total repaid 605000 Less: Amount borrowed 468152 Total bond interest expense 136848 2 semi-annual period end Cash Interest Bond Interest Premium Amortization Unamortized Premium Carrying value 1/1/2015 28152 468152 6/30/2015 16500 14045 2455 25697 465697 12/31/2015 16500 13971 2529 23167 463167 6/30/2016 16500 13895 2605 20562 460562 12/31/2016 16500 13817 2683 17879 457879 6/30/2017 16500 13736 2764 15116 455116 12/31/2017 16500 13653 2847 12269 452269 6/30/2018 16500 13568 2932 9337 449337 12/31/2018 16500 13480 3020 6317 446317 6/30/2019 16500 13390 3110 3207 443207 12/31/2019 16500 13296 3207 0 440000 Total 165000 136851 28152 3 Date Account title and explanation Debit Credit Interest expense 14045 Bond Premium 2455 Cash 16500 Interest expense 13971 Bond Premium 2529 Cash 16500

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