Question

Super Splash issues $860,000, 9% bonds on January 1, 2018, that mature in 20 years. The market interest rate for bonds of similar risk and maturity is 8%, and the bonds issue for $945,109. Interest is paid semiannually on June 30 and December 31.

Complete the first three rows of an amortization schedule.

	Date Cash Paid Interest Expense Decrease in Carrying Value Carrying Value 01/01/18 $945,109 06/30/18 12/31/18

2. & 3. Record the issuance of the bonds on January 1, the interest payments on June 30, 2018, and December 31, 2018

Answer 1

Face Value of Bonds = $860,000
Issue Value of Bonds = $945,109

Annual Coupon Rate = 9.00%
Semiannual Coupon Rate = 4.50%
Semiannual Coupon = 4.50% * $860,000
Semiannual Coupon = $38,700

Annual Interest Rate = 8.00%
Semiannual Interest Rate = 4.00%

Time to Maturity = 20 years
Semiannual Period = 40