ac221_fall2012_solution to inclass exercise on bond retirement

# The difference between interest expense and coupon

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Unformatted text preview: us to estimate the book value of the bond on 1/1/2013. Start by estimating the interest expense for 2012. Interest Expense for 2012 = Beginning Book value * Interest Rate = \$87,564 * 10% = \$8,756.4 We know that the coupon payment during 2012 was \$5,000. The difference between Interest Expense and Coupon (cash) payment is \$3,756.4 So, \$3,756.4 was the amount amortized from the discount during 2012. On 1/1/2013, the book value of the bond is: \$87,564 + \$3,756.4 = \$91,320.4 Alternatively, the unamortized discount on 1/1/2013 will be: \$12,434 (initial discount on 1/1/2012) - \$3,756.4 = \$8,677.6 Implying a book value on 1/1/2013: \$100,000 - \$8,677.6 = \$91,322.4 (Both approaches above are correct in estimating the book value of the bond. The differen...
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## This note was uploaded on 06/21/2013 for the course AC 221 taught by Professor Albuquerque during the Fall '08 term at BU.

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