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Vindaloo Corp
Vindaloo Corp. issues a new set of 8 percent, 20-year bonds in the amount of $1,500,000 on February 1, 2020. The bonds sell at 102.00 and pay interest on January 31 and July 31.
Required
Record (a) the issuance of the bonds on February 1, (b) the payment of interest on July 31, (c) the accrual of interest on December 31, and (d) the payment of interest on January 31, 2021. Assume Vindaloo Corp. amortizes the premium by the straight-line method.
hint-
Issuing bonds, paying and earning interest, and amortizing a premium by the straight-line method
c. Interest expense, $49,375
Expert Solution
Answer a)
Company is selling bond of face value 100 at 102
20 year bonds amount = $ 1500000
Issuance amount of the bond = 102 * 150000 = $ 1,530,000
Answer b)
Payment of interest = coupan payment = 4% (8% / 2 - because it is semi annual bond)
4% * 1,500,000 = $ 60000
Payment of interest on July 31 = $ 60000
Answer c)
Number of days between July 31 and December 31 = 152 days
Number of days Between July 31 and January 31 = 183 days
Accrued interest = 60000* 152/183 = 49836
Answer d)
Payment of interest of Jan 31 = coupan payment =4% ( semi annual bond)
4% * 1,500,000 = $ 60000
Payment of interest on Jan 31 = $ 60000
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