1. On January 1, 2014, Bills Sock Co issued $100,000 worth of bonds. The bonds carry 12% interest due each January 1, and mature on January 1, 2024. The market rate of interest was 13%.
   1. Would the bonds be issued at par, a discount or a premium? Discount
   2. Why? The market rate of interest and the interest is the same
   3. What is the bonds cash interest payment every year? 100,000 * 12/100=1,200,00/100=12,000
   4. What is the amount of money that will be repaid in 2024? Par value of bonds + Cash interest payment=

112,000

5. Compute the bonds issuance price using the PV of all the bond payment streams, discounted at ____% rate over _______ years. ____________________________

____________________________________________________________________________________________________________________________________

6. What are the B/S entries for the bond issuance on Jan 1, 2014?

Balance Sheet

7. What is the cash interest payment and interest expense for the bond in 2014 using the formulas below?

Cash interest payment = Principal x Coupon rate x Time

Interest expense = Carrying value Effective rate Time

Amortization of discount = Interest expense Cash interest payment

Cash interest payment: _______________________________________________

Interest expense: ____________________________________________________

Amortization of discount: ____________________________________________

8. What are the B/S and I/S entries on Dec 31, 2014? Ignore the impact of taxes.

Balance Sheet

Income Statement

1. What happens when the bond is retired in 10 years?

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