Final Accounting Exam

Question 2

On January 1, 2015, Piper Co. issued ten-year bonds with a face value of $3,000,000 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

Calculate the issue price of the bonds.

Issue price of bond $

2655902.36

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Without prejudice to your solution in part (a), assume that the issue price was $2,652,000. Prepare the amortization table for 2015, assuming that amortization is recorded on interest payment dates using the effective-interest method.