Clovis Company recently issued $500,000 (face value) bonds to finance a new construction project. The companys chief

Question:

Clovis Company recently issued $500,000 (face value) bonds to finance a new construction project. The company€™s chief accountant prepared the following bond amortization schedule:

Required:
1. Compute the discount or premium on the sale of the bonds, the semiannual interest rate, and the semiannual effective interest rate.
2. The company€™s vice president of finance wants any discount (or premium) at issuance of the bonds to be recorded immediately as a loss (or gain) at the issue date. Do you agree with this approach? Why or why not?
3. On December 31, 2016, the bonds€™ net carrying value is $522,258. ¡n present value terms, what does this amount represent?
4. Suppose that market interest rates were 6% semiannually on January 1, 2017, or 12.36% annually. What is the bond€™s market price on that date? Is the company better or worse off because of the interest rate change?Explain.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...