Question

# 5. On June 30, 2018, Singleton Computers issued 5% stated rate bonds with a face amount...

5. On June 30, 2018, Singleton Computers issued 5% stated rate bonds with a face amount of \$320 million. The bonds mature on June 30, 2033 (15 years). The market rate of interest for similar bond issues was 4% (2.0% semiannual rate). Interest is paid semiannually (2.5%) on June 30 and December 31, beginning on December 31, 2018. (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, 2018. 2. Calculate the interest expense Singleton reports in 2018 for these bonds using the effective interest method.

 1 Table values are based on: n = 30 i=2.5% Cash Flow Amount Present Value Interest 6400000 133953856 =6400000*20.93029 Present value of an ordinary annuity of \$1:n= 30,i= 2.5% (from PVA of \$1) Principal 320000000 152556800 =320000000*0.47674 Present value of \$1:n= 30,i= 2.5% (from PV of \$1) Price of bonds 286510656 2 Period­End Cash Interest Paid Bond Interest Expense Discount Amortization Carrying Value 6/30/2016 286510656 12/31/2016 6400000 7162766 762766 287273422 Cash interest paid = 320000000*2% = \$6400000 Bond Interest Expense = 286510656*2.5% = \$7162766

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