On January 1, 2018, Piper Co. issued ten-year bonds with a face value of $5,000,000 and a

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Question:

On January 1, 2018, Piper Co. issued ten-year bonds with a face value of $5,000,000 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 12% 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 $4,420,000. Prepare the amortization table for 2018, assuming that amortization is recorded on interest payment dates using the effective interest method.