Question
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
- 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%.
- Would the bonds be issued at par, a discount or a premium? _________________
- Why? ____________________________________________________________
- What is the bonds cash interest payment every year? ______________________
- What is the amount of money that will be repaid in 2024? ___________________
- Compute the bonds issuance price using the PV of all the bond payment streams, discounted at ____% rate over _______ years. ____________________________
____________________________________________________________________________________________________________________________________
- What are the B/S entries for the bond issuance on Jan 1, 2014?
Balance Sheet
- 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: ____________________________________________
- What are the B/S and I/S entries on Dec 31, 2014? Ignore the impact of taxes.
Balance Sheet
Income Statement
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