Question

# On June 30, 2021, Singleton Computers issued 6% stated rate bonds with a face amount of...

On June 30, 2021, Singleton Computers issued 6% stated rate bonds with a face amount of \$100 million. The bonds mature on June 30, 2036 (15 years). The market rate of interest for similar bond issues was 5% (2.5% semiannual rate). Interest is paid semiannually (3.0%) on June 30 and December 31, beginning on December 31, 2021. (FV of \$1, PV of \$1, FVA of \$1, PVA of \$1, FVAD of \$1 and PVAD of \$1) (Use appropriate factor(s) from the tables provided.)

Required:
1.
Determine the price of the bonds on June 30, 2021.
2. Calculate the interest expense Singleton reports in 2021 for these bonds using the effective interest method.

1) Price of the bonds on June 30, 2021 = \$ 110,465,146.30

Working:

 Present value of interest \$    62,790,877.78 [100,000,000*3/100*20.93029 PV annuity factor (2.5%, 15 years, semi annually interest)] Present value of the notes \$    47,674,268.52 [100,000,000*0.476743 PV ordinary factor (2.5%, 15 years)] price of bonds \$ 110,465,146.30

2) Interest expense Singleton reports in 2021 [using the effective interest method] = \$ 2,761,628.65

Working:

Interest Expense = Bond Price * 2.5% = \$ 110,465,146.30 * 2.5% = \$ 2,761,628.65