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Use the following to answer questions 11 - 15 Al issues 7.9%, 20-year bonds with a face amount of $2,500,000 for $2,512,411.
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Answer #1

Following is the calculation of interest expense, Interest Payment and closing carrying value.

Year Opening Carrying Value of Bond ( $) Interest Expense ($) Total ($) Interest Payment ($) Opening Carrying Value of Bond ($)
7.85% 7.90%
1             25,00,000                1,96,250                26,96,250                  1,97,500             24,98,750
2             24,98,750                1,96,152                26,94,902                  1,97,500             24,97,402
3             24,97,402                1,96,046                26,93,448                  1,97,500             24,95,948
4             24,95,948                1,95,932                26,91,880                  1,97,500             24,94,380
5             24,94,380                1,95,809                26,90,189                  1,97,500             24,92,689
6             24,92,689                1,95,676                26,88,365                  1,97,500             24,90,865
7             24,90,865                1,95,533                26,86,398                  1,97,500             24,88,898
8             24,88,898                1,95,378                26,84,276                  1,97,500             24,86,776
9             24,86,776                1,95,212                26,81,988                  1,97,500             24,84,488
10             24,84,488                1,95,032                26,79,520                  1,97,500             24,82,020
11             24,82,020                1,94,839                26,76,859                  1,97,500             24,79,359
12             24,79,359                1,94,630                26,73,989                  1,97,500             24,76,489
13             24,76,489                1,94,404                26,70,893                  1,97,500             24,73,393
14             24,73,393                1,94,161                26,67,554                  1,97,500             24,70,054
15             24,70,054                1,93,899                26,63,953                  1,97,500             24,66,453
16             24,66,453                1,93,617                26,60,070                  1,97,500             24,62,570
17             24,62,570                1,93,312                26,55,882                  1,97,500             24,58,382
18             24,58,382                1,92,983                26,51,365                  1,97,500             24,53,865
19             24,53,865                1,92,628                26,46,493                  1,97,500             24,48,993
20             24,48,993                1,92,246                26,41,239                  1,97,500             24,43,739

11. Interest payment amount is $ 197,500 P.A.

12. Interest expense for the first interest payment is $ 196,250.

13. Interest expense will decrease with each interest payment.

14. Bonds liability (Carrying value) each interest payment will decrease.

15. The company will pay amount $ 2,512,411 when the bonds mature in 20 years.

13.

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