Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate. 1. To determine: The total bond interest to be recognized over the life of the bond:

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 14, Problem 4APSA

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

1. To determine: The total bond interest to be recognized over the life of the bond:

Expert Solution

Answer to Problem 4APSA

Solution: 75917$

Explanation of Solution

Given:

Interest rate = 6.5%

Bond Value =250000$

Bond issue price = 255333$

Bond duration = 5 years

Calculation:

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

Conclusion

The total bond interest to be recognized over the life of the bond is $75917

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To prepare: Amortization table

Expert Solution

Explanation of Solution

Given

Bond value = 250000

Issue price of the bond = 255333

Calculation:

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Table showing Amount to be amortized semi- annually:

Date	Particulars	Amount to be amortized	Carrying value of premium	Carrying Value of bond
O1/01/17	Issue Price of bond		5333	255333
30/06/17	Amount to be amortized	533	4800	254800
31/12/17	Amount to be amortized	533	4267	254267
30/06/18	Amount to be amortized	533	3734	253734
31/12/18	Amount to be amortized	533	3201	253201
30/06/19	Amount to be amortized	533	2668	252668
31/12/19	Amount to be amortized	533	2135	252135
30/06/20	Amount to be amortized	533	1602	251602
31/12/20	Amount to be amortized	533	1069	251069
30/06/21	Amount to be amortized	533	536	250536
31/12/21	Amount to be amortized	533	0	250000

Conclusion

Conclusion: Carrying value of bond is $ 250000 at the end of year 5

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To determine: the journal entries for the first 2 interest payments:

Expert Solution

Answer to Problem 4APSA

Solution:

Journal Entries:

30/06/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium recognized for the period 1^st Jan 2017 to 30^th June 2017)

31/12/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium are recognized for the period 1^st July 2017 to 31^st December 2017)

Explanation of Solution

Calculation of interest expense to be amortized semi annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

$\begin{array}{l} I n t e r e s t \exp e n s e t o b e a m o r t i z e d s e m i a n n u a l l y = T o t a l I n t e r e s t E x p e n s e / N o O f Y e a r s * 2 \\ 75917 / 5 * 2 = 7592 \end{array}$

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Calculation of Interest to be paid semi-annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e / 2 \\ 250000 * 6.5 % / 2 = 8125 $ \end{array}$

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Energy and Utility Co. (E&U) currently has $800,000 in total assets and sales of $2,200,000. Half of E&U's total assets come from net fixed assets, and the rest are current assets. The firm expects sales to grow by 18% in the next year. E&U was using its fixed assets at only 88% of capacity last year. How much sales could the firm have supported last year with its current level of fixed assets? answer this question

What is the full cost per unit of making and selling the product?

What is its net income provide answer

Answer 2

Question

Chapter 14, Problem 4APSA

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

1. To determine: The total bond interest to be recognized over the life of the bond:

Expert Solution

Answer to Problem 4APSA

Solution: 75917$

Explanation of Solution

Given:

Interest rate = 6.5%

Bond Value =250000$

Bond issue price = 255333$

Bond duration = 5 years

Calculation:

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

Conclusion

The total bond interest to be recognized over the life of the bond is $75917

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To prepare: Amortization table

Expert Solution

Explanation of Solution

Given

Bond value = 250000

Issue price of the bond = 255333

Calculation:

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Table showing Amount to be amortized semi- annually:

Date	Particulars	Amount to be amortized	Carrying value of premium	Carrying Value of bond
O1/01/17	Issue Price of bond		5333	255333
30/06/17	Amount to be amortized	533	4800	254800
31/12/17	Amount to be amortized	533	4267	254267
30/06/18	Amount to be amortized	533	3734	253734
31/12/18	Amount to be amortized	533	3201	253201
30/06/19	Amount to be amortized	533	2668	252668
31/12/19	Amount to be amortized	533	2135	252135
30/06/20	Amount to be amortized	533	1602	251602
31/12/20	Amount to be amortized	533	1069	251069
30/06/21	Amount to be amortized	533	536	250536
31/12/21	Amount to be amortized	533	0	250000

Conclusion

Conclusion: Carrying value of bond is $ 250000 at the end of year 5

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To determine: the journal entries for the first 2 interest payments:

Expert Solution

Answer to Problem 4APSA

Solution:

Journal Entries:

30/06/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium recognized for the period 1^st Jan 2017 to 30^th June 2017)

31/12/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium are recognized for the period 1^st July 2017 to 31^st December 2017)

Explanation of Solution

Calculation of interest expense to be amortized semi annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

$\begin{array}{l} I n t e r e s t \exp e n s e t o b e a m o r t i z e d s e m i a n n u a l l y = T o t a l I n t e r e s t E x p e n s e / N o O f Y e a r s * 2 \\ 75917 / 5 * 2 = 7592 \end{array}$

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Calculation of Interest to be paid semi-annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e / 2 \\ 250000 * 6.5 % / 2 = 8125 $ \end{array}$

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 14, Problem 4APSA

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

1. To determine: The total bond interest to be recognized over the life of the bond:

Expert Solution

Answer to Problem 4APSA

Solution: 75917$

Explanation of Solution

Given:

Interest rate = 6.5%

Bond Value =250000$

Bond issue price = 255333$

Bond duration = 5 years

Calculation:

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

Conclusion

The total bond interest to be recognized over the life of the bond is $75917

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To prepare: Amortization table

Expert Solution

Explanation of Solution

Given

Bond value = 250000

Issue price of the bond = 255333

Calculation:

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Table showing Amount to be amortized semi- annually:

Date	Particulars	Amount to be amortized	Carrying value of premium	Carrying Value of bond
O1/01/17	Issue Price of bond		5333	255333
30/06/17	Amount to be amortized	533	4800	254800
31/12/17	Amount to be amortized	533	4267	254267
30/06/18	Amount to be amortized	533	3734	253734
31/12/18	Amount to be amortized	533	3201	253201
30/06/19	Amount to be amortized	533	2668	252668
31/12/19	Amount to be amortized	533	2135	252135
30/06/20	Amount to be amortized	533	1602	251602
31/12/20	Amount to be amortized	533	1069	251069
30/06/21	Amount to be amortized	533	536	250536
31/12/21	Amount to be amortized	533	0	250000

Conclusion

Conclusion: Carrying value of bond is $ 250000 at the end of year 5

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To determine: the journal entries for the first 2 interest payments:

Expert Solution

Answer to Problem 4APSA

Solution:

Journal Entries:

30/06/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium recognized for the period 1^st Jan 2017 to 30^th June 2017)

31/12/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium are recognized for the period 1^st July 2017 to 31^st December 2017)

Explanation of Solution

Calculation of interest expense to be amortized semi annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

$\begin{array}{l} I n t e r e s t \exp e n s e t o b e a m o r t i z e d s e m i a n n u a l l y = T o t a l I n t e r e s t E x p e n s e / N o O f Y e a r s * 2 \\ 75917 / 5 * 2 = 7592 \end{array}$

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Calculation of Interest to be paid semi-annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e / 2 \\ 250000 * 6.5 % / 2 = 8125 $ \end{array}$

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 14, Problem 4APSA

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

1. To determine: The total bond interest to be recognized over the life of the bond:

Expert Solution

Answer to Problem 4APSA

Solution: 75917$

Explanation of Solution

Given:

Interest rate = 6.5%

Bond Value =250000$

Bond issue price = 255333$

Bond duration = 5 years

Calculation:

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

Conclusion

The total bond interest to be recognized over the life of the bond is $75917

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To prepare: Amortization table

Expert Solution

Explanation of Solution

Given

Bond value = 250000

Issue price of the bond = 255333

Calculation:

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Table showing Amount to be amortized semi- annually:

Date	Particulars	Amount to be amortized	Carrying value of premium	Carrying Value of bond
O1/01/17	Issue Price of bond		5333	255333
30/06/17	Amount to be amortized	533	4800	254800
31/12/17	Amount to be amortized	533	4267	254267
30/06/18	Amount to be amortized	533	3734	253734
31/12/18	Amount to be amortized	533	3201	253201
30/06/19	Amount to be amortized	533	2668	252668
31/12/19	Amount to be amortized	533	2135	252135
30/06/20	Amount to be amortized	533	1602	251602
31/12/20	Amount to be amortized	533	1069	251069
30/06/21	Amount to be amortized	533	536	250536
31/12/21	Amount to be amortized	533	0	250000

Conclusion

Conclusion: Carrying value of bond is $ 250000 at the end of year 5

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To determine: the journal entries for the first 2 interest payments:

Expert Solution

Answer to Problem 4APSA

Solution:

Journal Entries:

30/06/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium recognized for the period 1^st Jan 2017 to 30^th June 2017)

31/12/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium are recognized for the period 1^st July 2017 to 31^st December 2017)

Explanation of Solution

Calculation of interest expense to be amortized semi annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

$\begin{array}{l} I n t e r e s t \exp e n s e t o b e a m o r t i z e d s e m i a n n u a l l y = T o t a l I n t e r e s t E x p e n s e / N o O f Y e a r s * 2 \\ 75917 / 5 * 2 = 7592 \end{array}$

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Calculation of Interest to be paid semi-annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e / 2 \\ 250000 * 6.5 % / 2 = 8125 $ \end{array}$

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 14, Problem 4APSA

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

1. To determine: The total bond interest to be recognized over the life of the bond:

Expert Solution

Answer to Problem 4APSA

Solution: 75917$

Explanation of Solution

Given:

Interest rate = 6.5%

Bond Value =250000$

Bond issue price = 255333$

Bond duration = 5 years

Calculation:

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

Conclusion

The total bond interest to be recognized over the life of the bond is $75917

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To prepare: Amortization table

Expert Solution

Explanation of Solution

Given

Bond value = 250000

Issue price of the bond = 255333

Calculation:

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Table showing Amount to be amortized semi- annually:

Date	Particulars	Amount to be amortized	Carrying value of premium	Carrying Value of bond
O1/01/17	Issue Price of bond		5333	255333
30/06/17	Amount to be amortized	533	4800	254800
31/12/17	Amount to be amortized	533	4267	254267
30/06/18	Amount to be amortized	533	3734	253734
31/12/18	Amount to be amortized	533	3201	253201
30/06/19	Amount to be amortized	533	2668	252668
31/12/19	Amount to be amortized	533	2135	252135
30/06/20	Amount to be amortized	533	1602	251602
31/12/20	Amount to be amortized	533	1069	251069
30/06/21	Amount to be amortized	533	536	250536
31/12/21	Amount to be amortized	533	0	250000

Conclusion

Conclusion: Carrying value of bond is $ 250000 at the end of year 5

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To determine: the journal entries for the first 2 interest payments:

Expert Solution

Answer to Problem 4APSA

Solution:

Journal Entries:

30/06/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium recognized for the period 1^st Jan 2017 to 30^th June 2017)

31/12/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium are recognized for the period 1^st July 2017 to 31^st December 2017)

Explanation of Solution

Calculation of interest expense to be amortized semi annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

$\begin{array}{l} I n t e r e s t \exp e n s e t o b e a m o r t i z e d s e m i a n n u a l l y = T o t a l I n t e r e s t E x p e n s e / N o O f Y e a r s * 2 \\ 75917 / 5 * 2 = 7592 \end{array}$

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Calculation of Interest to be paid semi-annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e / 2 \\ 250000 * 6.5 % / 2 = 8125 $ \end{array}$

Answer 6

Chapter 14, Problem 4APSA

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

1. To determine: The total bond interest to be recognized over the life of the bond:

Expert Solution

Answer to Problem 4APSA

Solution: 75917$

Explanation of Solution

Given:

Interest rate = 6.5%

Bond Value =250000$

Bond issue price = 255333$

Bond duration = 5 years

Calculation:

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

Conclusion

The total bond interest to be recognized over the life of the bond is $75917

Answer 7

Chapter 14, Problem 4APSA

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

1. To determine: The total bond interest to be recognized over the life of the bond:

Answer 8

Expert Solution

Answer to Problem 4APSA

Solution: 75917$

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Given:

Interest rate = 6.5%

Bond Value =250000$

Bond issue price = 255333$

Bond duration = 5 years

Calculation:

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

Answer 13

Conclusion

The total bond interest to be recognized over the life of the bond is $75917

Answer 14

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To prepare: Amortization table

Expert Solution

Explanation of Solution

Given

Bond value = 250000

Issue price of the bond = 255333

Calculation:

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Table showing Amount to be amortized semi- annually:

Date	Particulars	Amount to be amortized	Carrying value of premium	Carrying Value of bond
O1/01/17	Issue Price of bond		5333	255333
30/06/17	Amount to be amortized	533	4800	254800
31/12/17	Amount to be amortized	533	4267	254267
30/06/18	Amount to be amortized	533	3734	253734
31/12/18	Amount to be amortized	533	3201	253201
30/06/19	Amount to be amortized	533	2668	252668
31/12/19	Amount to be amortized	533	2135	252135
30/06/20	Amount to be amortized	533	1602	251602
31/12/20	Amount to be amortized	533	1069	251069
30/06/21	Amount to be amortized	533	536	250536
31/12/21	Amount to be amortized	533	0	250000

Conclusion

Conclusion: Carrying value of bond is $ 250000 at the end of year 5

Answer 15

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To prepare: Amortization table

Answer 16

Expert Solution

Explanation of Solution

Given

Bond value = 250000

Issue price of the bond = 255333

Calculation:

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Table showing Amount to be amortized semi- annually:

Date	Particulars	Amount to be amortized	Carrying value of premium	Carrying Value of bond
O1/01/17	Issue Price of bond		5333	255333
30/06/17	Amount to be amortized	533	4800	254800
31/12/17	Amount to be amortized	533	4267	254267
30/06/18	Amount to be amortized	533	3734	253734
31/12/18	Amount to be amortized	533	3201	253201
30/06/19	Amount to be amortized	533	2668	252668
31/12/19	Amount to be amortized	533	2135	252135
30/06/20	Amount to be amortized	533	1602	251602
31/12/20	Amount to be amortized	533	1069	251069
30/06/21	Amount to be amortized	533	536	250536
31/12/21	Amount to be amortized	533	0	250000

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Expert Solution

Answer 20

Conclusion

Conclusion: Carrying value of bond is $ 250000 at the end of year 5

Answer 21

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To determine: the journal entries for the first 2 interest payments:

Expert Solution

Answer to Problem 4APSA

Solution:

Journal Entries:

30/06/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium recognized for the period 1^st Jan 2017 to 30^th June 2017)

31/12/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium are recognized for the period 1^st July 2017 to 31^st December 2017)

Explanation of Solution

Calculation of interest expense to be amortized semi annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

$\begin{array}{l} I n t e r e s t \exp e n s e t o b e a m o r t i z e d s e m i a n n u a l l y = T o t a l I n t e r e s t E x p e n s e / N o O f Y e a r s * 2 \\ 75917 / 5 * 2 = 7592 \end{array}$

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Calculation of Interest to be paid semi-annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e / 2 \\ 250000 * 6.5 % / 2 = 8125 $ \end{array}$

Answer 22

To determine

Introduction:

Bonds are generally issued by the companies. These are financial instruments that carry fixed rate of interest known as coupon rate. Typical definition of a bond is a fixed income investment in which an investor loans money to an entity/ government for a fixed period at an agreed interest rate.

To determine: the journal entries for the first 2 interest payments:

Answer 23

Expert Solution

Answer to Problem 4APSA

Solution:

Journal Entries:

30/06/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium recognized for the period 1^st Jan 2017 to 30^th June 2017)

31/12/2017 Interest Expense	7592$
Premium on bonds	533$
To Bank		8125$

(Being interest paid for the bonds issued and premium are recognized for the period 1^st July 2017 to 31^st December 2017)

Answer 24

Expert Solution

Answer 25

Expert Solution

Answer 26

Expert Solution

Answer 27

Explanation of Solution

Calculation of interest expense to be amortized semi annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e \\ 250000 * 6.5 % = 16250 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t f o r t h e l i f e o f t h e b o n d = I n t e r e s t F o r t h e y e a r * n o o f y e a r s \\ 16250 * 5 = 81750 $ \end{array}$

$\begin{array}{l} T o t a l I n t e r e s t E x p e n s e t o b e r e c o g n i s e d = T o t a l I n t e r e s t E x p e n s e - \Pr e m i u m t o b e a m o r t i z e d \\ 81750 - 5333 = 75917 $ \end{array}$

$\begin{array}{l} I n t e r e s t \exp e n s e t o b e a m o r t i z e d s e m i a n n u a l l y = T o t a l I n t e r e s t E x p e n s e / N o O f Y e a r s * 2 \\ 75917 / 5 * 2 = 7592 \end{array}$

Premium to be amortized semi annually

$\begin{array}{l} \Pr e m i u m T o B e A m o r t i z e d = I s s u e \Pr i c e - B o n d V a l u e \\ 255333 - 250000 = 5333 \end{array}$

$\begin{array}{l} \Pr e m i u m t o b e a m o r t i z e d S e m i a n n u a l l y = T o t a l \Pr e m i u m / N o O f Y e a r s * 2 \\ 5333 / 10 = 533 \end{array}$

Calculation of Interest to be paid semi-annually

$\begin{array}{l} I n t e r e s t f o r t h e y e a r = V a l u e o f B o n d * I n t e r e s t R a t e / 2 \\ 250000 * 6.5 % / 2 = 8125 $ \end{array}$

Answer 28

Ch. 14 - Prob. 1DQ Ch. 14 - Prob. 2DQ Ch. 14 - Prob. 3DQ Ch. 14 - Prob. 4DQ Ch. 14 - Prob. 5DQ Ch. 14 - Prob. 6DQ Ch. 14 - Prob. 7DQ Ch. 14 - Prob. 8DQ Ch. 14 - Prob. 9DQ Ch. 14 - Prob. 10DQ

Answer to Problem 4APSA

Explanation of Solution

Explanation of Solution

Answer to Problem 4APSA

Explanation of Solution

Want to see more full solutions like this?

Chapter 14 Solutions