Question
On January 1, 2021, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June 30 and December 31. Portions of the bond amortization
On January 1, 2021, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below:
| Payment | Cash Payment | Effective Interest | Increase in Balance | Outstanding Balance | |||||
| 6,047,387 | |||||||||
| 1 | 292,000 | 302,369 | 10,369 | 6,057,756 | |||||
| 2 | 292,000 | 302,888 | 10,888 | 6,068,644 | |||||
| 3 | 292,000 | 303,432 | 11,432 | 6,080,076 | |||||
| 4 | 292,000 | 304,004 | 12,004 | 6,092,080 | |||||
| 5 | 292,000 | 304,604 | 12,604 | 6,104,684 | |||||
| 6 | 292,000 | 305,234 | 13,234 | 6,117,918 | |||||
| ~ | ~ | ~ | ~ | ~ | |||||
| ~ | ~ | ~ | ~ | ~ | |||||
| ~ | ~ | ~ | ~ | ~ | |||||
| 38 | 292,000 | 355,060 | 63,060 | 7,164,267 | |||||
| 39 | 292,000 | 358,213 | 66,213 | 7,230,480 | |||||
| 40 | 292,000 | 361,520 | 69,520 | 7,300,000 | |||||
Required: 1a. What is the face amount of the bonds? 1b. What is the initial selling price of the bonds? 1c. What is the term to maturity in years? 1d. Interest is determined by what approach? 1e. What is the stated annual interest rate? 1f. What is the effective annual interest rate? 1g. What is the total cash interest paid over the term to maturity? 1h. What is the total effective interest expense recorded over the term to maturity?
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Financial Accounting Impact On Decision Makers
Authors: Gary A. Porter, Curtis L. Norton
7th Edition
1111464936, 978-1111464936
