90.2K

Verified Solution

Link Copied!

Bonds Issued at a Premium (stated rate > market rate)

On January 1, 2020, REYLO issues $100,000 in bonds with an annual stated rate of 9%. The bonds mature in 5 years and interest is paid semi-annually. The market rate is 8% annually.

Will this bond be issued at par value, a discount, or a premium? Why?

Calculate the semi-annual cash interest payment amount:

Calculate the present value of the bond:

Record the Bond Issuance

1/1/2020

1. Straight Line Amortization: Premium Amortization = Total Premium / N

Record interest payments (all the same) every 6 months

2. Effective Interest Amortization

Bond Carrying Value = Bond Principal + Premium

Period	Carrying Value (begin)	Market Rate	Interest Expense	Cash Interest Paid	Premium Amortization	Carrying Value (end)
1
2
3
4
5
6
7
8
9
10

1^st Period interest expense:

6/30/20

2^nd Period interest expense:

12/31/20

Bond maturity journal entry:

12/31/24

Answer & Explanation Solved by verified expert

See Answer