Temptation Vacations issues $51 million in bonds on January 1, 2015, that pay interest semiannually on June 30 and December 31. Portions of the bond amortization scedule appear below:
|Date||Cash Paid for Interest||Interest Expense||Decrease in Carrying Value||Carrying Value|
1. What is the original issue price of the bonds?
2. What is the face amount of the bonds?
3. What is the stated annual interest rate?
4. What is the market annual interest rate?
5. What is the total cash interest paid over the term to maturity if the term of the bond is 20 years?
Bonds payable are generally classified as long term liabilities and presented in the balance sheet as non current liability. It may be issued below or above its face amount. Amortization may be done through straight line method or effective interest method.
Answer and Explanation:
|Original issue price of the bonds||56,894,267|
|Face of the bonds||51,000,000|
|Stated Rate( 1,785,000 / 51,000,000 )* 2||7%|
|Market Rate ( 1,706,828 / 56,894,267)* 2||6%|
|Total Cash Payment of Interest (1,785,000 * 20 * 2)||71,400,000|
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from Financial Accounting: Help and ReviewChapter 8 / Lesson 7