Answer:
Vacation Destinations
1. The bonds were issued at a discount.
2. The original issue price of the bonds is: $32,512,829 ($9,28.94 per $1,000).
3. Face Amount is: $35,000,000
4. The stated annual interest rate is 6%.
5. The market annual interest rate is 7%.
6. The Total cash paid for interest, assuming the bonds mature in 10 years is $21,000,000.
Explanation:
a) Data and Calculations:
Face value of bonds = $35,000,000
Interest rate = 6% ($1,050,000/$35,000,000 * 100) x 2
Discounted value $32,512,829
Discounts = $2,487,171
Amortization of discounts during the first interest payment = $87,949
Amortization of discounts during the December 31, 2021 interest payment = $91,027
Original issue price = $9,28.94 ($32,512,829/35,000)
Market annual interest rate = ($1,137,949/$32,512,829 * 100) * 2 = 7%
Total cash paid for interest = $1,050,000 * 10 * 2 = $21,000,000
Portions of the bond amortization schedule appear below:
Date Cash Paid Interest Expense Increase Carrying amount
1/1/2021 $ 32,512,829
6/30/2021 $ 1,050,000 $ 1,137,949 $ 87,949 32,600,778
12/31/2021 1,050,000 1,141,027 91,027 32,691,805
