Answered

Explore Westonci.ca, the premier Q&A site that helps you find precise answers to your questions, no matter the topic. Get immediate and reliable answers to your questions from a community of experienced experts on our platform. Get immediate and reliable solutions to your questions from a community of experienced professionals on our platform.

On January 1, 2017, ARC Inc. issued 100 5-year bonds, with a face value of $1,000 each and a coupon rate of 10%, payable semiannually. The interest is paid on June 30 and December 31 of each year. The market rate of interest at the time that the bonds were issued was 13%, so that the bonds were sold for $892 each.1. Interest expense for the January 1–June 30 period was $_____.
2. Interest expense for the July1–December 31 period was $_____.
3. Book value of Bonds on June 30 was $_____.
4. Book value of Bonds on December 31 was $_____.
5. Interest payment on June 30 was $_____.

Sagot :

anthougo

Answer:

ARC Inc.

1. Interest expense for the January 1–June 30 period was $__5,798___.

2. Interest expense for the July 1–December 31 period was $__5,850___.

3. Book value of Bonds on June 30 was $__89,998___.

4. Book value of Bonds on December 31 was $__90,848___.

5. Interest payment on June 30 was $__5,000___.

Explanation:

a) Data and Calculations:

January 1, 2017:

Face value of issued bonds = $100,000 ($1,000 * 100)

Coupon rate of interest = 10%

Effective rate of interest = 13%

Price of issued bonds =        $89,200 ($892 * 100)

Discount on bonds =             $10,800 ($100,000 - $89,200)

Interest payment = June 30 and December 31 (semiannually)

June 30:

Interest expense = $5,798 ($89,200 * 6.5%)

Cash payment =     $5,000 ($100,000 * 5%)

Amortization of discount = $798

Value of bonds = $89,998 ($89,200 + $798)

December 31, 2017:

Interest expense = $5,850 ($89,998 * 6.5%)

Cash payment =     $5,000 ($100,000 * 5%)

Amortization of discount = $850

Value of bonds = $90,848 ($89,998 + $850)

Thank you for visiting our platform. We hope you found the answers you were looking for. Come back anytime you need more information. We hope you found this helpful. Feel free to come back anytime for more accurate answers and updated information. Your questions are important to us at Westonci.ca. Visit again for expert answers and reliable information.