Pizza Pier Issues 7%, 10-Year Bonds with a Face Amount

question 73

Essay

Pizza Pier issues 7%, 10-year bonds with a face amount of $80,000 for $85,951 on January 1, 2012. The market interest rate for bonds of similar risk and maturity is 6%. Interest is paid semiannually on June 30 and December 31.
1. Record the bond issue.
2. Record the first interest payment on June 30, 2012.

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Definitions:

Present Value

Present value refers to the current value of a future amount of money or series of cash flows, calculated using a specific rate of return.

Net Present Value

A calculation used to assess the profitability of an investment, considering the difference between the present value of cash inflows and outflows over a period of time.

Internal Rate of Return

A financial metric used to evaluate the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Net Present Value

An economic metric that evaluates the gap between the present value of cash inflows and outflows across a designated period.