ew History Bookmarks Window Help He Builit Problems On January 1, 2018, Tennesse

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ew History Bookmarks Window Help He Builit Problems On January 1, 2018, Tennessee Harvester Corpora December 31. Portions of the bond amortization schedule appear below. tffective Increase in Oatstanding BalanceBalance ,893,518 280,000293,61113,6114,907,129 280,000 294,428 280,000 295,293 280,000 296,211 280,000 297,184 280,000 298,215 ,921,55 4,428 15,293 6,211 17,184 18,215 4.936,850 4,953,061 4,970,245 4,988,460 280,000 397,547 280,000 404,600 280,000 412,072 117,54 124,600 132,072 6,743,328 6,867,928 7,000,000 39 Required 1. What is the face amount of the bonds? 2. What is the initial selling price of the bonds? 3. What is the term to maturity in years? 4. Interest is determined by what approach? 5. What is the stated annual interest rate? 6. What is the effective annual interest rate? 7. What is the total cash interest paid over the term to maturity? 8. What is the total effective interest expense recorded over the term to maturity? selling price

Explanation / Answer

Solution 1:

Face amount of bond = Outstanding balance at 40 th period = $7,000,000

Solution 2:

Initial selling price of bond = Outstanding balance at beginning = $4,893,518

Solution 3:

Term to maturity = 40 semi annual period =20 years

Solution 4:

Interest is determined by effective interest method approach.

Solution 5:

Stated annual interest rate = $280,000 / $70,000,000 = 4% semiannual, 8% annual rate of interest.

Solution 6:

Effective annual interest rate = Effective interest for 1st period / Outstanding balance at beginning

= $293,611 / $4,893,518 = 6% semiannual, 12% annual

Solution 7:

Total cash interest paid over the term of maturity = $280,000 * 40 = $11,200,000

Solution 8:

Total effective interest expense recorded over the terms of maturity = Cash interest paid + discount amortized

= $11,200,000 + ($7,000,000 - $4,893,518) = $13,306,482

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