Question

Christmas Anytime issues $740,000 of 6% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. Calculate the issue price of a bond and complete the first three rows of an amortization schedule when:

1. The market interest rate is 5% and the bonds issue at a premium

Date	Cash Paid	Interest Expense	Change in Carrying Value	Carrying Value
01/01/2021
06/30/2021
12/31/2021

Answer 1

.

When the market interest rate is lower than the coupon rate, bonds will be issued at a discount.

Issue price

= [$740,000 x 3% x PVIFA (2.5%, 30)] + [$740,000 x PVIF (2.5%, 30)]

= ($22,200 x 20.93) + ($740,000 x 0.477)

= $817,626

The required amortization table will be prepared as follows:

Date	Cash Paid	Interest Expense	Change in carrying value	Carrying value
1/1/2021				817626
6/30/2021	22200	20440.7	1759.4	815866.7
12/31/2021	22200	20396.7	1803.3	814063.3