Answer:
cash 67,962,962 debit
discount on bonds payable 12,037,037 debit
bonds payable 80,000,000 credit
--to record bonds issuance-----
interest expense 4,077,777.75
amortization 77, 777.75
cash 4,000,000
-- to record June 30th payment--
interest expense 4082,444.42
amortization 82,444.42
cash 4,000,000
-- to record December 31th payment--
Explanation:
The present value of the bond will be the sum of the present value of the coupon payment at market rate:
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C 4,000,000 (80,000,000x 10%/2)
time 40 (20 years x 2 payment per eyar)
rate 0.06 (12% market rate / 2)
[tex]4000000 \times \frac{1-(1+0.06)^{-40} }{0.06} = PV\\[/tex]
PV $60,185,187.4861
And the present value of the maturity at market rate as well:
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 80,000,000.00
time 40
rate 0.06
[tex]\frac{80000000}{(1 + 0.06)^{40} } = PV[/tex]
PV 7,777,775.02
PV c $60,185,187.4861
PV m $7,777,775.0167
Total $67,962,962.5028
first period
Then the interest expense will be:
67,962,962 x 0.06 = 4.077.777,72
cash proceeds: ( 4,000,000)
amortization 77,777.72
for the second period:
carrying value:
67,962,962 + 77,777.72 = 68,040,740
interest expense
68,040,740 x 0.06 = 4,082,444.42
cash proceeds 4,000,000
amortization 82444.42
