On January 1, 2011, Piper Co. issued ten-year bonds with a face value of $1,000,
ID: 2388510 • Letter: O
Question
On January 1, 2011, Piper Co. issued ten-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 annunity for 10 periods at 10%................... 6.145
Present value of annunity for 10 periods at 12%................... 5.650
Present value of annunity for 20 periods at 5%.................... 12.462
Present value of annunity 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 $884,000. Prepare the amortization table for 2011, assuming that amortization is recorded on interest payment dates.
Explanation / Answer
On January 1, 2011, Piper Co. issued ten-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 annunity for 10 periods at 10%................... 6.145
Present value of annunity for 10 periods at 12%................... 5.650
Present value of annunity for 20 periods at 5%.................... 12.462
Present value of annunity for 20 periods at 6%.................... 11.470
(a) Calculate the issue price of the bonds.
100,000 x .312=31200
500 x11.470= 57350
Answer= 88,550
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