On January 1, 2018, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June...

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Accounting

On January 1, 2018, Tennessee Harvester Corporation issueddebenture bonds that pay interest semiannually on June 30 andDecember 31. Portions of the bond amortization schedule appearbelow:
Payment Cash
Payment Effective
Interest Increasein
Balance Outstanding
Balance
5,774,920
1 216,000 230,997 14,997 5,789,917
2 216,000 231,597 15,597 5,805,514
3 216,000 232,221 16,221 5,821,735
4 216,000 232,869 16,869 5,838,604
5 216,000 233,544 17,544 5,856,148
6 216,000 234,246 18,246 5,874,394
~ ~ ~ ~ ~
~ ~ ~ ~ ~
~ ~ ~ ~ ~
38 216,000 280,008 64,008 7,064,202
39 216,000 282,568 66,568 7,130,770
40 216,000 285,230 69,230 7,200,000
Required:
1. What is the face amount of the bonds?
2. What is the initial selling price of thebonds?
3. What is the term to maturity in years?
4. Interest is determined by what approach?
5. What is the stated annual interest rate?
6. What is the effective annual interestrate?
7. What is the total cash interest paid over theterm to maturity?
8. What is the total effective interest expenserecorded over the term to maturity?

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3.6 Ratings (473 Votes)

Answer 1 Face Amount 7200000 Answer 2 Initial Selling Price 5774920 Answer 3 Number of semiannual coupons 40 Term to Maturity 20 years Answer 4 Effective interest is increasing by each payment so interest is See Answer

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Payment	Cash Payment	Effective Interest	Increasein Balance	Outstanding Balance
				5,774,920
1	216,000	230,997	14,997	5,789,917
2	216,000	231,597	15,597	5,805,514
3	216,000	232,221	16,221	5,821,735
4	216,000	232,869	16,869	5,838,604
5	216,000	233,544	17,544	5,856,148
6	216,000	234,246	18,246	5,874,394
~	~	~	~	~
~	~	~	~	~
~	~	~	~	~
38	216,000	280,008	64,008	7,064,202
39	216,000	282,568	66,568	7,130,770
40	216,000	285,230	69,230	7,200,000