Questions - Bonds A company issues term bonds totaling $300,000 on January 1, 2014. The bonds have a coupon rate of 5%, pay interest semi-annually on January 1" and July 1" of each year, and mature in 10 years. Calculate the bond issue price assuming that the prevailing annual market rate of interest is: O 5% o 4% As applicable, prepare a bond discount or bond premium amortization schedule based on the effective interest method As applicable, record the applicable journal entries in 2014 5% Annual Market Rate of Interest (At Par) Bond Issue Price Write down the inputs used on your financial calculator here: N=____ /Y=___ PV=__ PMT=__ FV=___ The bond issue price equals: Bond Amortization Schedule (Effective-Interest Method) NA-since the coupon rate equals the prevailing market rate (both 5%), there is no bond discount or premium. And since there is no bond discount or premium, there is no need for an amortization table. The semi-annual interest is equal to Applicable Journal Entries (First Year) Accounts Debit Credit Date 1/1/2014 Accounts Debit Credit Date 7/1/2014 12/31/2014 FYI: On 12/31/2014, the interest expense is accrued since the actual payment isn't made until 1/1/2015. 4% Annual Market Rate of Interest (Bond Premium) In this scenario, the coupon rate of 5% is greater than the prevailing market rate of 4%. Therefore, this bond will be issued at a premium. This means that the proceeds received > face value of the bonds. Bond Issue Price Write down the inputs used on your financial calculator here: N=__ T/Y = __ PV=__ PMT=__ FV= The bond issue price equals: Bond Premium Amortization Schedule (Effective Interest Method) The effective interest method adjusts the interest payment amount so that the amount of interest expense is equal to the prevailing annual market rate of interest. Interest Payment Interest Expense Premium Amortized Bond Carrying Value Date 1/1/14 7/1/14 7,500 1/1/15 7,500