Question 4. Question : (TCO D) On January 1, 2011, Piper Co.
issued 10-year bonds with a face value of $1,000,000 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:
11.470
Instructions:
- Calculate the issue price of the bonds.
- Without prejudice to your solution in Part (a), assume that the
issue price was $884,000. Prepare the amortization table for 2011,
assuming that amortization is recorded on interest payment dates.
Question 5. Question : (TCO D) Hurst, Inc. sold its 8% bonds with a
maturity value of $3,000,000 on August 1, 2009 for $2,946,000. At
the time of the sale, the bonds had 5 years until they reached
maturity. Interest on the bonds is payable semiannually on August 1
and February 1. The bonds are callable at 104 at any time after
August 1, 2011. By October 1, 2011, the market rate of interest has
declined and the market price of Hurst’s bonds has risen to a price
of 101. The firm decides to refund the bonds by selling a new 6%
bond issue to mature in 5 years. Hurst begins to reacquire its 8%
bonds in the market and is able to purchase $500,000 worth at 101.
The remainder of the outstanding bonds is reacquired by exercising
the bonds’ call feature. In the final analysis, how much was the gain