Exercise 6-18 Price of a bond; interest expense [LO6-9 On June 30, 2016, Singlet

Question

Exercise 6-18 Price of a bond; interest expense [LO6-9 On June 30, 2016, Singleton Computers issued 8% stated rate bonds with aface amount of $100 million The bonds mature on June 30, 2031 (15 years) The market rate of interest for similar bond issues was 5% (2.5% semiannual rate Interest s paid serm annually (40%) on June 30and December 31 December 31, 2016. (EV of $1 appropriate factor(s) from the tables provided.) FVA of $1, PVA of $1. EVAD of $1 and PVA se Required: 1. Determine the price of the bonds on June 30, 2016 Table values are based on: n= I- Cash Flow Amount Present Value Interest Principal Price of bonds 2. Calculate the interest expense Singleton reports in 2016 for these bonds using the effective interest method rest Premium Carrying Value Cash Interest Paid Bond Inte ExpenseAmortization 06/30/2016 12/31/2016

Explanation / Answer

Table values are based on: n 30 i 2.5% Cashflow Amount Present value Interest $         2,000,000 $        41,910,585 Principal $     100,000,000 $        47,674,269 Price of Bond $        89,584,854 Period - End Cash Interest Paid Bond Interest Exp Premium Amortization Carrying value 6/30/2016 12/31/2016 $ 2,000,000.00 $ 2,238,371.34 $ 238,371.34 $ 89,773,225.05

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