Question

# Coney Island Entertainment issues \$1,000,000 of 5% bonds, due in 15 years, with interest payable semiannually...

Coney Island Entertainment issues \$1,000,000 of 5% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year.

3. The market interest rate is 4% and the bonds issue at a premium. (FV of \$1, PV of \$1, FVA of \$1, and PVA of \$1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

 Issue price
 date cash paid interest expense decrease in carrying value carrying value 01/01/18 06/30/18 12/31/18

Face value = \$1,000,000
Coupon payment = \$1,000,000 * 5% * 6/12 = \$25,000
No. of payments = 15 * 2 = 30
Market rate = 4% / 2 = 2%

Issue price = Present value of coupon payment + Present value of maturity
= (\$25,000 * PVAF 2% 30) + (\$1,000,000 * PVF 2% 30)
= (\$25,000 * 22.39646) + (\$1,000,000 * 0.55207)
= \$1,111,981.50 Interest expense = Last Carrying value * 4% * 6/12
Decrease in Carrying Value = Cash paid - Interest expense

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