Answer:
1) $19.3 million in bonds issued January 1, 2018
coupon rate 10%, semiannual 5% interest
maturity = 10 years x 2 = 20 periods
market interest rate = 12% / 2 = 6% semiannual
1) market price of the bonds:
PV of face value = $19,300,000 / (1 + 6%)²⁰ = $6,017,831.23
PV of coupon payments = $965,000 x 11.470 (PV annuity factor, 6%, 20 periods) = $11,068,550
market price = $17,086,381.23 ≈ $17,086,381
2) January 1, 2018, bonds issued at a discount
Dr Cash 17,086,381
Dr Discount on bonds payable 2,213,619
Cr Bonds payable 19,300,000
3) June 30, 2018, first coupon payment
Dr Interest expense 1,025,183
Cr Cash 965,000
Cr Discount on bonds payable 60,183
amortization of bond discount = ($17,086,381 x 6%) - $965,000 = $1,025,182.86 - $4,860,000 = $60,182.86 ≈ $60,183
4) December 31, 2018, second coupon payment
Dr Interest expense 1,028,794
Cr Cash 965,000
Cr Discount on bonds payable 63,794
amortization of bond discount = ($17,146,564 x 6%) - $965,000 = $1,028,793.84 - $965,000 = $63,793.84 ≈ $63,794
