On January 1, 2018, Clear View Video, Incorporated issued $1,200,000 of $1,000 par value, 10%, 6-year bonds
On January 1, 2018, Clear View Video, Incorporated issued $1,200,000 of $1,000 par value, 10%, 6-year bonds. Interest is payable semiannually each January 1 and July 1 with the first interest payment due at the end of the period on July 1, 2018. The market rate of interest for similar non-convertible bonds on the date of the bond issue was 12%. The bonds were sold for $1,580,712, yielding an effective rate of 4%. Each bond is convertible into 80 shares of Clear View's $2 par value common stock. Assume that there is no beneficial conversion option.
Read the requirements.
Requirement a. Prepare the amortization table for the bond issue through January 1, 2021, assuming that Clear View uses the effective interest rate method of amortization. (Round each calculation to the nearest whole number and then use the rounded value for each subsequent calculation in the table.)
Homework Answers
Solution :
| Date | Cash interest | Effective interest | Discount / Premium Amortization | Carrying value |
| 1-Jan-18 | $1,580,712 | |||
| 1-Jul-18 | $60,000 | $31,614 | $28,386 | $1,552,326 |
| 1-Jan-19 | $60,000 | $31,047 | $28,953 | $1,523,373 |
| 1-Jul-19 | $60,000 | $30,467 | $29,533 | $1,493,840 |
| 1-Jan-20 | $60,000 | $29,877 | $30,123 | $1,463,717 |
| 1-Jul-20 | $60,000 | $29,274 | $30,726 | $1,432,991 |
| 1-Jan-21 | $60,000 | $28,660 | $31,340 | $1,401,651 |
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