Mazeltov Corporation issued $100,000 3-year, 10% stated rate bonds on January 1,
ID: 2625320 • Letter: M
Question
Mazeltov Corporation issued $100,000 3-year, 10% stated rate bonds on January 1, 2004. The bonds pay interest annually and sold at a market rate of 8%.
a. Calculate the issue price of the bonds.
b. Prepare an amortization schedule for the bonds (use the table below):
Payment date
Carrying value, beginning
Cash interest
Interest expense
Amortization
Carrying value, ending
6/30/04
12/31/04
6/30/05
12/31/05
6/30/06
12/31/06
c.Record the interest expense entry for the 6/30/05 interest payment:
Accounts
Debits
credits
Payment date
Carrying value, beginning
Cash interest
Interest expense
Amortization
Carrying value, ending
6/30/04
12/31/04
6/30/05
12/31/05
6/30/06
12/31/06
Explanation / Answer
Value = Present Value of Coupon + Present Value Face
Coupon = 0.10 x 100 000 =$10 000
Value = (10000/0.08) (1-(1.09)^(-5) ) + [ 100000/ (1.09)^5 ] = $107 779.30