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

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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}$

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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}$

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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}$

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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}$

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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

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