On January 1 Manderlee Inc issued 180000 of 9 5year bonds wh

On January 1, Manderlee Inc. issued $180,000 of 9% 5-year bonds when the market interest rate
was 10%. The bonds pay interest semiannually on June 30th and December 31. Proceeds
received were $173,050.
These bonds were issued at a DISCOUNT/PREMIUM (circle one) because the Contract Rate is
EQUAL TO/ GREATER THAN/ LESS THAN (circle one) the Market Rate
Record the following transactions:
Bond issue on January 1
Paid semiannual interest on June 30
Amortized the bond premium or discount

Solution

Solution Bond Face Value $180,000 Coupon Interest rate 9 % per annum Semi- Annually coupon Interest Rate 9%/2=4.5% $ 180,000 x 4.5% = $ 8,100 Yield to Maturity(YTM) 10% Semi Annually 10%/2 = 5% Maturity Period of Bond 5 Years Semi Annually Period 5 x 2 = 10 period Now Calculation Of present value of Bond 1 Present Value of Bond Interest Coupon Interest (a) $ 8,100 Present Value Annuity Factor at 5 % YTM, 10 period (b) 7.72173493 Present Value (axb) $ 62,546.0530 2 Present Value of Bond Proceeds Bond Proceed at end (a) $ 173,050 Present value factor at 5 % , 10 period   (b) 0.61391325 Present Value   (axb) $ 106,237.6880 3 Total Present Value of Bond (1+2) $ 168,783.741 Since present value of bond is less than its face value, it is at discount 4 Calculation of Discount on Bond $ 180,000 - $ 168783.741 x 12 / 6 x 100 = 12.4625%              $ 180,000 At conclusion we can say Bond is issued at discount of 12.4625% per annum Please feel free to ask if anything about above solution in comment section of the question.