Question

On January 1, 2021, Cullumber Satellites issued $1,430,000, 10-year bonds. The bonds pay semi-annual interest on...

On January 1, 2021, Cullumber Satellites issued $1,430,000, 10-year bonds. The bonds pay semi-annual interest on July 1 and January 1, and Cullumber has a December 31 year end. A partial bond amortization schedule is presented below:

Semi-Annual
Interest Period
Interest
Payment
Interest
Expense
Amortization Bond
Amortized Cost
Jan. 1, 2021 $1,328,381
July 1, 2021 $ [1] $ [2] $3,593 1,331,974
Jan. 1, 2022 42,900 46,619 3,719 1,335,693
July 1, 2022 42,900 46,749 [3] 1,339,542
Jan. 1, 2023 42,900 46,884 [4] [5]
July 1, 2023 42,900 47,023 4,123 1,347,649
Jan. 1, 2024 42,900 47,168 4,268 1,351,917

Were the bonds issued at a premium or a discount?
PremiumDiscount

What is the face value of the bonds?

Face value of the bonds $

What is the contractual rate of interest?

Contractual rate of interest

Fill in the missing amounts for items [1] through [5].

Semi-Annual
Interest Period
Interest Payment Interest Expense Amortization Bond Amortized Cost
Jan. 1, 2021 $1,328,381
July 1, 2021 $ [1] $ [2] $3,593 1,331,974
Jan. 1, 2022 42,900 46,619 3,719 1,335,693
July 1, 2022 42,900 46,749 [3] 1,339,542
Jan. 1, 2023 42,900 46,884 [4] [5]
July 1, 2023 42,900 47,023 4,123 1,347,649
Jan. 1, 2024 42,900 47,168 4,268

What was the market interest rate when the bonds were issued? (Round answer to 0 decimal places, e.g. 52%.)

Market interest rate %

Jan. 1, 2021

(To record issuance of bonds.)

July 1, 2021

(To record interest payment.)

Dec. 31, 2021

(To accrue interest expense.)

CULLUMBER SATELLITES
Balance Sheet (Partial)

                                                                      December 31, 2021For the Month Ended December 31, 2021For the Year Ended December 31, 2021

                                                                      Intangible AssetsTotal Liabilities and Shareholders' EquityCurrent LiabilitiesTotal AssetsTotal Non-Current LiabilitiesTotal Current AssetsShareholders' EquityTotal Shareholders' EquityProperty, Plant and EquipmentCurrent AssetsTotal Intangible AssetsTotal Current LiabilitiesNon-Current LiabilitiesTotal Property, Plant and EquipmentTotal Liabilities

$

                                                                      Current LiabilitiesShareholders' EquityTotal Current LiabilitiesTotal LiabilitiesTotal Intangible AssetsTotal Current AssetsTotal Property, Plant and EquipmentIntangible AssetsNon-Current LiabilitiesProperty, Plant and EquipmentTotal Shareholders' EquityTotal Non-Current LiabilitiesTotal Liabilities and Shareholders' EquityCurrent AssetsTotal Assets

$

Homework Answers

Answer #1

a)The Bonds are issued at discount since the amortized cost is less than Face value of Bonds.

b)Face value of bonds = $ 1,430,000

c) Interest payment = Face value *contract rate*n/12

where n= 6 months ,as there are 2 semiannual period in a year comprising of 6 months each.

42900 = 1430000*contract rate * 6/12

42900 = 715000* contract rate

contract rate= 42900/715000 = .06 or 6%

d)

Semiannual interest period Interest payment Interest expense Amortization Bond amortized cost
Jan 1 2021 1,328,381
July 1 2021 42900 46493   [42900+3593] 3593 1,331,974
Jan 1 2022 42900 46,619 3719 1335693
July 1 2022 42900 46749 46749-42900= 3849 1339542
Jan 1 2023 42900 46884 46884-42900= 3984 1339542+3984=1343526
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