Astro World issues $20 million in bonds on January 1, 2021 that pay interest semi-annually on June 30 and December 31. A portion of the bond amortization schedule appears below:(1) Date(2) Cash Paid(3) Interest Expense(4) Increase in Carrying Value(5) Carrying Value?Face Amount × Stated RateCarrying Value × Market Rate(3) - (2)Prior Carrying Value + (4)1/1/2021???$17,864,4936/30/2021600,000625,25725,25717,889,75012/31/2021600,000626,14126,14117,915,891Required: 1. Were the bonds issued at face amount, a discount, or a premium?2. What is the original issue price of the bonds?3. What is the face amount of the bonds?4. What is the stated annual interest rate?5. What is the market annual interest rate?6. What is the total cash paid for interest assuming the bonds mature in 20
years?
What will be an ideal response?
1. Discount
2. $17,864,493
3. $20,000,000
4. 6% ($600,000 cash paid ÷ $20,000,000 face value) × 2
5. 7% ($625,257 interest expense ÷ $17,864,493 carrying value) × 2
6. $24,000,000 ($20,000,000 × 6% × 20 years)
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What will be an ideal response?