Question

On January 1, 2021, Marigold Co. issued ten-year bonds with a face value of $4,200,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are: Present value of 1 for 10 periods at 10% 0.386 Present value of 1 for 10 periods at 12% 0.322 Present value of 1 for 20 periods at 5% 0.377 Present value of 1 for 20 periods at 6% 0.312 Present value of annuity for 10 periods at 10% 6.145 Present value of annuity for 10 periods at 12% 5.650 Present value of annuity for 20 periods at 5% 12.462 Present value of annuity for 20 periods at 6% 11.470

1- Calculate the issue price of the bonds.

2-Without prejudice to your solution in part (a), assume that the issue price was $3,712,800. Prepare the amortization table for 2021, assuming that amortization is recorded on interest payment dates using the effective-interest method.

Answer 1

Solution 1:

Computation of bond price
Table values are based on:
n=	20
i=	6.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.31180	$4,200,000.00	$1,309,560
Interest (Annuity)	11.46992	$210,000.00	$2,408,683
Price of bonds			$3,718,243

Solution 2:

Bond Amortization Schedule
Period	Cash Paid	Interest Expense	Discount Amortized	Unamortized Discount	Carrying Value
1-Jan-21				$487,200	$3,712,800
30-Jun-21	$210,000	$222,768	$12,768	$474,432	$3,725,568
31-Dec-21	$210,000	$223,534	$13,534	$460,898	$3,739,102