Problem 9-7B Calculate the issue price of a bond and prepare amortization schedules (LO9-5, 9-7) [The following information applies to the questions displayed below.] Christmas Anytime issues $790,000 of 7% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. Calculate the issue price of a bond and complete the first three rows of an amortization schedule when:

Answer is given below.

Explanation:

Solution 1:

Chart Values are based on:      

n= (15 Years*2)30Half years

i= (7%/2)3.50%Semi annual

Cash FlowTable Value*Amount=Present Value

Principal0.356278*$7,90,000=$2,81,460

Interest (Annuity) [$790,000*7%*6/12]18.392045*$27,650=$5,08,540

Price of Bonds  $7,90,000

Bond Amortization Schedule

DateCash interestInterest ExpenseChanage in Carrying ValueCarrying value

01-Jan-21    $7,90,000

30-Jun-21$27,650$27,650$0$7,90,000

31-Dec-21$27,650$27,650$0$7,90,000

Solution 2:

Chart Values are based on:      

n= (15 Years*2)30Half years

i= (8%/2)4.00%Semi annual

Cash FlowTable Value*Amount=Present Value

Principal0.308319*$7,90,000=$2,43,572

Interest (Annuity) [$790,000*7%*6/12]17.292033*$27,650=$4,78,125

Price of Bonds  $7,21,696

Bond Amortization Schedule

DateCash interestInterest ExpenseChange in Carrying ValueCarrying value

01-Jan-21    $7,21,696

30-Jun-21$27,650$28,868$1,218$7,22,914

31-Dec-21$27,650$28,917$1,267$7,24,181

Solution 3:

Chart Values are based on:      

n= (15 Years*2)30Half years

i= (6%/2)3.00%Semi annual

Cash FlowTable Value*Amount=Present Value

Principal0.411987*$7,90,000=$3,25,470

Interest (Annuity) [$790,000*7%*6/12]19.600441*$27,650=$5,41,952

Price of Bonds  $8,67,422

Bond Amortization Schedule

DateCash interestInterest ExpenseChange in Carrying ValueCarrying value

01-Jan-21    $8,67,422

30-Jun-21$27,650$26,023-$1,627$8,65,794

31-Dec-21$27,650$25,974-$1,676$8,64,118