Question

How do i calculate the issue price of a bond and complete the amortization?

Coney Island Entertainment issues $1,500,000 of 5% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. Calculate the issue price of a bond and complete the first three rows of an amortization schedule when

Answer 1

Par Value of Bonds = $1,500,000

Annual Coupon Rate = 5.00%
Semiannual Coupon Rate = 2.50%
Semiannual Coupon = 2.50% * $1,500,000
Semiannual Coupon = $37,500

Time to Maturity = 10 years
Semiannual Period = 20

Annual Interest Rate = 5.00%
Semiannual Interest Rate = 2.50%

Issue Price of Bonds = $37,500 * PVA of $1 (2.50%, 20) + $1,500,000 * PV of $1 (2.50%, 20)
Issue Price of Bonds = $37,500 * 15.5892 + $1,500,000 * 0.6103
Issue Price of Bonds = $1,500,000

Date Cash Paid Interest Expense Increase in Carrying Value 01/01/18 06/30/18 12/31/18 Caarying Value $ 1,500,000 $ 1,500,000 $ 1,500,000 $ $ 37,500 $ 37,500$ 37,500 $ 37,500 $ - -