On January 1, 2018, Cod Fisheries sold $100,000 (face value) of bonds. The bonds are dated...
On January 1, 2018, Cod Fisheries sold $100,000 (face value) of bonds. The bonds are dated January 1, 2018, and will mature on January 1, 2023. Interest is to be paid annually on January 1. The following amortization schedule was prepared for the first two years of the bond’s life:
|
Date |
Interest payment |
Interest expense |
Amortization |
Book value of bond |
|
1/1/18 |
$104,212.37 |
|||
|
1/1/19 |
$ 7,000 |
$ 6,252.74 |
$ 747.26 |
103,465.11 |
|
1/1/20 |
7,000 |
6,207.91 |
792.09 |
102,673.02 |
Required:
- What is the coupon rate for this bond issue?
- What is the effective interest rate for this bond issue?
- Prepare the journal entry to record the sale of the bond on January 1, 2018.
- Identify the amount of interest expense to be reported on the income statement for the year ended December 31, 2020.
- What is the bond’s book value at December 31, 2021?
Homework Answers
Answer a.
Coupon Rate = Interest Payment / Face Value of Bonds
Coupon Rate = $7,000 / $100,000
Coupon Rate = 7.00%
Answer b.
Effective Interest Rate = Interest Expense, 1/1/19 / Book Value
of Bonds, 1/1/18
Effective Interest Rate = $6,252.74 / $104,212.37
Effective Interest Rate = 6.00%
Answer c.
Answer d.
Interest Expense = $6,160.38
Answer e.
Book Value at December 31, 2021 = $100,943.40
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