On January 1, 2011, Piper Co. issued 10-year bonds with a face value of $1,000,0
ID: 2357840 • Letter: O
Question
On January 1, 2011, Piper Co. issued 10-year bonds with a face value of $1,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are: Present value of 1 for 10 periods at 10% .386 Present value of 1 for 10 periods at 12% .322 Present value of 1 for 20 periods at 5% .377 Present value of 1 for 20 periods at 6% .312 Present value of annuity for 10 periods at 10% 6.145 Present value of annuity for 10 periods at 12% 5.650 Present value of annuity for 20 periods at 5% 12.462 Present value of annuity for 20 periods at 6% 11.470 Instructions: - Calculate the issue price of the bonds.(finished) - Without prejudice to your solution in Part (a), assume that the issue price was $884,000. Prepare the amortization table for 2011, assuming that amortization is recorded on interest payment dates.Explanation / Answer
(a) .312 × $1,000,000 = $312,000
11.470 × $50,000 = 573,500
$885,500
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(b) Date Cash Expense Amortization Carrying Amount
1/1/11 $884,000
6/30/11 $50,000 $53,040 3,040 887,040
12/31/11 50,000 53,222 3,222 890,262
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