About Bond Issue

Topics: Bond, Bonds, 1982 Pages: 2 (341 words) Published: August 27, 2013
Bond issue price and premium amortization

Bond issue price and premium amortization

On January 1, 2011, Placido Co. issued ten-year bonds with a face value of P1,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:                 Present value of 1 for 10 periods at 10% .........................................               .386                 Present value of 1 for 10 periods at 12% .........................................               .322                 Present value of 1 for 20 periods at 5% ..........................................                .377                 Present value of 1 for 20 periods at 6% ..........................................                .312                 Present value of annuity for 10 periods at 10% ...............................              6.145                 Present value of annuity for 10 periods at 12% ...............................              5.650                 Present value of annuity for 20 periods at 5% .................................            12.462                 Present value of annuity for 20 periods at 6% .................................            11.470

Instructions
(a)    Calculate the issue price of the bonds.
(b)    Without prejudice to your solution in part (a), assume that the issue price was P884,000. Prepare the amortization table for 2011, assuming that amortization is recorded on interest payment dates.

Solution 14-122
(a)  .312 × P1,000,000            =      P312,000         11.470 × P50,000           =        573,500                                                         P885,500

                                Cash                      Interest                           Discount (b)  Date                   Paid                       Expense                        Amortized           Carrying Amount         1/1/11                                                       ...
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