On January 1, 2013, Piper Co. issued ten-year bonds with a face value of $4,000,

Question

On January 1, 2013, Piper Co. issued ten-year bonds with a face value of $4,000,000 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

(a) Calculate the issue price of the bonds.

(b) Without prejudice to your solution in part (a), assume that the issue price was $3,536,000. Prepare the amortization table for 2013, assuming that amortization is recorded on interest payment dates

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Issue Price of the Bonds = =PV(6%,20,200000,4000000) = 3541203.12 or 3541203

Part B:

Thanks.

Date 10% Cash 12% Yield Discount Amortized Carrying Amount 01-Jan-13


3536000 30-Jun-13 200000 212160 12160 3548160 31-Dec-13 200000 212890 12890 3561050

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