The Mariner Company, a calendar year corporation, issued $1,000,000 of 5% bonds at a price generating a 4% yield. The bonds were dated January 1, 2006 and were issued that day. The bonds mature January 1, 2016. The bonds pay interest semi-annually January 1 and on June 30th of each year.
1) Compute the selling price of ONLY the bonds (face amount excluding interest).
2) What is the TOTAL amount of cash collected on the sale of the bonds on January 1, 2006?
3) What is the amount of interest expense on the bonds for 2006 under the straight line method of amortizing any premiums or discount on the bond sale?
4) What will be the interest expense on the bonds over the entire life of the bonds? Uses excel and develop a spreadsheet using the straight line method and a spreadsheet using the effective interest rate method for the entire life of the bonds. Each spreadsheet should list the following: Date, Beginning carrying value, interest expense and cash paid, premium or discount amortized, ending carrying value.
5) What is the gain or loss on the retirement of the bonds, assuming the bonds are redeemed at 102 plus accrued interest at June 1, 2010? Any premium of discount is amortized under the straight line method.