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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