On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,087 every six months. What is the amount the company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue?

Question
Asked Apr 9, 2019

On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,087 every six months. What is the amount the company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue?

check_circle

Expert Answer

Step 1

Calculation of Amount of Bond Discount:

The bond premium is $10,087 for six months. The bond premium will be doubled for a year which appears as $20,174 ($10,087*2) since the bond is paid on semi-annual or on six month basis.

fullscreen
Step 2

Calculation of Book Value of the Bond:

fullscreen
Step 3

Calculation of Interest Payable:

...
fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Bonds

Related Finance Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: 3. Finding the interest rate and the number of years Aa Aa E The future value and present value equa...

A: Calculating the implied interest rate the investor will earn on the security by using the formula of...

question_answer

Q: Modern Artifacts can produce keepsakes that will be sold for $60 each. Nondepreciation fixed costs a...

A: Your answers to part (a), (b) and (c) are correct. Hence, I am not solving them again. Further you h...

question_answer

Q: What finances do you need to have to achieve getting somewhere with Cosmetology?  For instance to bu...

A: Some essential costs that are needed to be assessed before building a salon are:Cosmetics: A salon h...

question_answer

Q: Given the following information for Watson Power Co., Find the WACC. Assume the company’s tax rate i...

A: Calculation of WACC:

question_answer

Q: What are investment assets ?

A: Investment Assets: Investment assets are termed as tangible or intangible things that are acquired f...

question_answer

Q: Assume that a radiology group practice has the following cost structure: Fixed cost=$500,000   Varia...

A: Fixed Costs are those costs that remains constant within a relevant range as the level of activity o...

question_answer

Q: Assume the​ zero-coupon yields on​ default-free securities are as summarized in the following​ table...

A: Let\'s assume the par annual coupon is C per annum paid once annually.Face Value of the bond, FV = $...

question_answer

Q: Wayne, Inc., wishes to expand its facilities. The company currently has 6 million shares outstanding...

A: Calculation of New Book Value per share:

question_answer

Q: I now have $16,000 in the bank earning interest of 1.00% per month. I need $26,000 to make a down pa...

A: Calculation of Duration of the Investment:The Duration of the Investment can be calculated using a e...