Question

Required information [The following information applies to the questions displayed below.] On January 1 of this year, Nowell Company issued bonds with a face value of $280,000 and a coupon rate of 8.0 percent. The bonds mature in five years and pay interest semiannually every June 30 and December 31. When the bonds were sold, the annual market rate of interest was 8.0 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) Required: 1. What was the issue price on January 1 of this year? (Round your final answers to nearest whole dollar amount.) Issue price

Answer 1

SOLUTION : 1
	Coupon rate of bonds and market rate of interest both are the same rate so
	bonds can be issued on par value only i.e. $ 280,000
	Answer = Issue Price = $ 280,000
SOLUTION : 2
	There is no discount or premium on issuance of bond so coupon amount is
	given to bondholder is only to be recorded as interest expenses
	Coupon Amount = $ 280,000 X 8% X 4/12 = $ 11,200 on June 30 & December 31
		June - 30	Dec - 31
	Interest Expenses	$11,200	$11,200
SOLUTION : 3
	There is no discount or premium on issuance of bond so book value of the bond is remain constant over period of life
		June - 30	Dec - 31
	Cash Owed	$2,80,000	$2,80,000
SOLUTION : 4
	There is no discount or premium on issuance of bond so book value of the bonds book value is constant over period of life
		June - 30	Dec - 31
	Bonds Payable	$2,80,000	$2,80,000