Consider the following bond details below and answer the questions. Use the included Financial Statement Impact template to make the accounting entries requested in the questions below. On January 1, 2020, the Tri-County Metro District issues $3,800,000 of 4% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 6%, the bonds will issue at $3,234,672.
a) Confirm the bond issuance price and show your work.
b) Why are two different present value tables used to price the bond?
c) Is this bond issued at a discount, premium, or par? Explain your answer.
d) Create your own amortization table. The table should show the carrying value on January 1 as the first row. Include 3 full years of interest payments. Refer to the videos and text for amortization table examples.
e) Record the following entries on the included Financial Statement Impact Template.
a. Jan 1, 2020 bond issuance
b. June 30, 2020 interest payment
c. Dec 31, 2020 interest payment
f) This company chose to issue a bond as a means to raise capital. Identify two reasons a company may choose this type of financing.