Gordon Corporation issued $700,000 par value, 2%, 5-year bonds on January 1, 2019. The bonds mature on December 31, 2023 and pay semi-annual interest. The market rate on the date of issue is 4%. Gordon has elected to use the straight-line method for discount amortization. What is the bond issue price for the Gordon bonds?

Question

Quizplus · Accepted Answer

The bond issue price is calculated by discounting the bond's future cash flows (interest payments and principal repayment) at the market rate of 4%. The semi-annual interest payment is $7,000 ($700,000 * 2% / 2), and the present value of these payments plus the principal repayment at maturity gives the bond issue price of $637,122.

Gordon Corporation Issued $700,000 Par Value, 2%, 5-Year Bonds on January