Question

Bonds Problem

Hartz Corporation had the following transactions relating to borrowings during 2020:

• Hartz issued $2,000,000 in ten-year 5% bonds when the price was 98 (Bond A). Interest is paid once a year.
• Hartz issued $2,000,000 in ten-year 5% bonds when the price was 102. (Bond B). Interest is paid once a year.
• Hartz issued $2,000,000 in ten -year 5% bonds that were issued at par (100) (Bond C). Interest is paid once a year

Required

• Calculate the amount of money received when the bonds were issued for each bond.
• Calculate the amount of cash paid on the interest date for each bond.
• Calculate the amount of interest expense for each bond.

	Bond A	Bond B	Bond C
Proceeds From Issuing Bond
Cash Paid on Interest Date
Interest Expense on Interest Date

Answer 1

Answer:

	Bond A	Bond B	Bond C
Proceeds from issuing bond	$1,960,000	$2,040,000	$2,000,000
Cash paid on interest date	$100,000	$100,000	$100,000
Interest Expense on Interest Date	$98,000	$102,000	$100,000

Calculations:

	Bond A	Bond B	Bond C
Proceeds from issuing bond
[$2,000,000 x 0.98]	$1,960,000
[$2,000,000 x 1.02]]		$2,040,000
[$2,000,000 x 1.00]]			$2,000,000
Cash paid on interest date
[$2,000,000 x 5%]	$100,000	$100,000	$100,000
Interest Expense on Interest Date
[$1,960,000 x 5%]	$98,000
[$2,040,000 x 5%]		$102,000
[$2,000,000 x 5%]			$100,000