Question

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 $

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