Question
The account Bonds payable (net) of the Tamar Company showed balances of $751,314.80 on December 31, 2017, and $1,035,665.29 on December 31, 2018. A note
The account Bonds payable (net) of the Tamar Company showed balances of $751,314.80 on
December 31, 2017, and $1,035,665.29 on December 31, 2018. A note to the 2018 Financial
Statements disclosed that the bonds outstanding on December 31, 2017 were zero coupon bonds
that were issued a few years ago when the market effective interest rate was 10% (compounded
annually). These bonds were called and retired on the last day of 2018, resulting in a loss of
$23,553.72. The bonds outstanding on December 31, 2018 were $1,000,000 of 10% coupon bonds
(interest is paid, in cash, annually, on the last day of the year) that were issued on January 1, 2018
for $1,051,541.94.
Required:
a. What was the cash outlay made for the retirement of the zero-coupon bonds?
b. What was the interest expense of the Tamar Company Company for 2018?
c. What was the effective market rate of interest for the 10% bonds on January 1, 2018 (issue
date)?
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