Question

Required information [The following information applies to the questions displayed below.] Cron Corporation is planning to issue bonds with a face value of $770,000 and a coupon rate of 13 percent. The bonds mature in five years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Cron uses the effective-interest amortization method. Assume an annual market rate of interest of 12 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) 2. What amount of interest expense should be recorded on June 30 and December 31 of this year? (Round your final answers to nearest whole dollar amount.) June 30 December 31 Interest expense

Answer 1

Solution 2:

Computation of bond price
Table values are based on:
n=	10
i=	6.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.55839	$770,000.00	$429,960
Interest (Annuity)	7.36009	$50,050.00	$368,373
Price of bonds			$798,333

Bond Amortization Schedule
Period	Cash Paid	Interest Expense	Premium Amortized	Unamortized Premium	Carrying Value
Year 1, Jan 1				$28,333	$798,333
Year 1, June 30	$50,050	$47,900	$2,150	$26,183	$796,183
Year 1, Dec 31	$50,050	$47,771	$2,279	$23,904	$793,904

Interest expense - June 30 = $47,900

Interest expense - Dec 31 = $47,771