On January 1, 2021, Splash City issues $500,000 of 9% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. The market interest rate on the issue date is 10% and the bonds issued at $457,102. Required: 1. Using an amortization schedule, show that the bonds have a carrying value of $458,633 on December 31, 2022. 2. If the market interest rate drops to 7% on December 31, 2022, it will cost $601,452 to retire the bonds. Record the retirement of the bonds on December 31, 2022.
On January 1, 2021, Splash City issues $500,000 of 9% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. The market interest rate on the issue date is 10% and the bonds issued at $457,102. Required: 1. Using an amortization schedule, show that the bonds have a carrying value of $458,633 on December 31, 2022. 2. If the market interest rate drops to 7% on December 31, 2022, it will cost $601,452 to retire the bonds. Record the retirement of the bonds on December 31, 2022.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 2021, Splash City issues $500,000 of 9% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. The market interest rate on the issue date is 10% and the bonds issued at $457,102.
Required:
1. Using an amortization schedule, show that the bonds have a carrying value of $458,633 on December 31, 2022.
2. If the market interest rate drops to 7% on December 31, 2022, it will cost $601,452 to retire the bonds. Record the retirement of the bonds on December 31, 2022.
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