On January 1, Applied Technologies Corporation (ATC) issued $590,000 in bonds that mature in 10 years. The bonds have a stated interest rate of 11 percent. When the bonds were issued, the market interest rate was 11 percent. The bonds pay interest once per year on December 31.

Question

Madisyn Cisneros

Business

4 January, 19:37

On January 1, Applied Technologies Corporation (ATC) issued $590,000 in bonds that mature in 10 years. The bonds have a stated interest rate of 11 percent. When the bonds were issued, the market interest rate was 11 percent. The bonds pay interest once per year on December 31.

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Amber Gordon · Answer 1

1. $590,000

2.

January 1

Dr. Cash $590,000

Cr. Bond payable $590,000

3.

December 31

Dr. Interest Expense $64,900

Cr. Bond interest payable $64,900

Explanation:

Price of the bond is the present value of all cash flows of the bond. These cash flows include the coupon payment and the maturity payment of the bond. Both of these cash flows discounted and added to calculate the value of the bond.

As we know that the bond is issued at par when the market rate and coupon rate are same, because the value of the bond is determined by calculating the present value of future cash flows associated with the bond. so, discounting the cash flows using same rate as coupon rate will ultimately result $590,000, the par value of the bond.

Interest accrued = $590,000 x 11% = $64,900