Answer:
Bonds were issued at 636,338.5473
journal entries:
cash 636,339
discount on bonds 23,661
bonds payable 660,000
--to record issuance--
interest expense 15908
discount on bonds 2708
cash 13200
--to record first payment--
the attached image isthe amortization schedule
Explanation:
we will first calculate the present value of the cuopon payment and maturity at the market rate:
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C 13,200
time 8
rate 0.025
[tex]13200 \times \frac{1-(1+0.025)^{-8} }{0.025} = PV\\[/tex]
PV $94,645.8106
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 660,000.00
time 8.00
rate 0.025
[tex]\frac{660000}{(1 + 0.025)^{8} } = PV[/tex]
PV 541,692.74
PV c $94,645.8106
PV m $541,692.7367
Total $636,338.5473
method on effective rate:
carrying value x market rate = interest expense
bonds face value x bond rate = cash procceds
difference: amortization
the amortization as this is discount will increase the carrying value of the bond after each payment
