1. 14-118Bond issue price and premium amortization.

On January 1, 2018, Piper Co. issued ten-year bonds with a face value of $5,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:

Present value of 1 for 10 periods at 10% .............................................................................................. .386

Present value of 1 for 10 periods at 12% .............................................................................................. .322

Present value of 1 for 20 periods at 5% .............................................................................................. .377

Present value of 1 for 20 periods at 6% .............................................................................................. .312

Present value of annuity for 10 periods at 10% ............................................................................................ 6.145

Present value of annuity for 10 periods at 12% ............................................................................................ 5.650

Present value of annuity for 20 periods at 5% .......................................................................................... 12.462

Present value of annuity for 20 periods at 6% .......................................................................................... 11.470

Instructions

(a) Calculate the issue price of the bonds.

(b) Without prejudice to your solution in part (a), assume that the issue price was $4,420,000. Prepare the amortization table for 2018, assuming that amortization is recorded on interest payment dates using the effective-interest method.