2. Bonds Payable On January 1 June 30 and December 31 each year. Use this inform

Question

2. Bonds Payable On January 1 June 30 and December 31 each year. Use this information to answer questions Q4-Q7 Q4. Assuming the market interest rate is 6.5%, answer the following questions , 2018, Water Mania issues $1,000,000 of 6% bonds, due in ten years, with interest payable semi-annually on 1) What is the face amount of the bonds? 2) What is the stated annual interest rate? What is the market annual interest rate? 3) 4) Will the original issue price of the bonds be higher or lower than the face amount of the bonds? 5) Will the bonds be issued at face amount, a discount, or a premium? 6) What is the total cash that will be paid for interest during the bonds' 10-year life (hint: the interest payment for each payment period is the same)? Q5. If the market interest rate is 6%, the bonds will issue at $1,000,000 1) 2) Record the bond issue on January 1, 2018 Record the first two semi-annual interest payments on June 30, 2018, and December 31, 2018 Q6. If the market interest rate is 7%, the bonds will issue at $928,938. Record the bond issue on January 1, 2018, and the first two semi-annual interest payments on June 30, 2018, and December 31, 2018 1) Record the bond issue on January 1, 2018 2) Record the first two semi-annual interest payments on June 30, 2018, and December 31, 2018 3) What is the bond's carrying value on June 30, 2018 and on December 31, 2018, respectively? Q7. If the market interest rate is 5%, the bonds will issue at $1,077,946 1) Record the bond issue on January 1, 2018 2) Record the first two semi-annual interest payments on June 30, 2018, and December 31, 2018 3) What is the unamortized premium/discount amount on June 30, 2018 and December 31,2018, respectively?

Explanation / Answer

Solution 4:

1) Face value of bonds is $1,000,000

2) Stated annual interest rate is 6%

3) market annual interest rate is 6.5%

4) Original issue price of bond will be lower than face value.

5) Bonds will be issued at a discount.

6) Cash that will be paid for 10 year period will be 1,000,000*6%*6/12 = 30,000*20 = 600,000

Solution 5:

1) Bond issue

2) Interest entries

Solution 6:

1. Entry

2. Interest entry

3. Carrying Value on

June 30, 2018 is 928,938+2,513 = 931,451

Dec 31, 2018 is 931,451+2,601 = 934,052

Solution 7:

1. Bond issue

2. Interest entries

3) Unamortized premium balance on

June 30, 2018 is 77,946-3,051 = 75,895

Dec 31, 2018 is 75,895 - 3,128 = 71,767

Table value are based on: n= 20 i= 3.25% Cash Flow Table Value Amount Present Value Par (maturity value) 0.527 1,000,000 527,471 Interest (annuity) 14.539 30,000 436,180 963,652

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.