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Example #4, On January 1, 2016 a company issues 100 bonds, each for $1,000, for a discount, a the interest rate on the bond (stated/coupon
Example #4, On January 1, 2016 a company issues 100 bonds, each for $1,000, for a discount, a the interest rate on the bond (stated/coupon rate) is 3% and the market rate is 4%. They then used this cash to purchase an automobile for $100,000 cash. The bond is to be paid in at the end of THREE years (December 31, 2018). Cash received from issuing bond Present value of maturity payment $100,000 Present value of interest payment ($100,000*.03-$3,000) Present value of cash payments Account Name Debit Credit Date 1/1/2016 12/31/2016 (Discount balance: 2,775.09-889.00-1,886.09) Date 12/31/2017 Account Name Credit (Discount balance: 1,886.09-924.56-961.53) Account Name Debit Credit Date 12/31/2018 (Discount balance is now zero)
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