On January 1 of this year, Thomas Insurance Corporation issued bonds with a face value of $4,000,000

Question:

On January 1 of this year, Thomas Insurance Corporation issued bonds with a face value of $4,000,000 and a coupon rate of 9 percent. The bonds mature in five years and pay interest annually every December 31. When the bonds were sold, the annual market rate of interest was 6 percent. Thomas uses the effective-interest amortization method.

Required:

1. What was the issue price on January 1 of this year?

2. What amount of interest expense should be recorded on December 31 of this year? December 31 of next year?

3. What amount of cash interest should be paid on December 31 of this year? December 31 of next year?

4. What is the book value of the bonds on December 31 of this year? December 31 of next year?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...

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