Practice problem 4Today is 1/1/2006. The Flame Corp. has been operating for a number of years. As of today, The Flame has a zero-coupon bond (Series A bond), which was issued on 1/1/2003 at a price of $1,016,600. The Series A bond matures 10 years after issuance and has a facevalue of $2,000,000. On 1/1/2006, the market value of the zero-coupon (Series A) bond is $1,421,400. On this day, The Flame issues a new series of bonds (Series B). The market rate on the Series B bonds is the same as the rate implied in the market value of the zero-coupon bond. The Series B bonds have a face value of $3,000,000 and a stated rate of 6%. Series B bonds make annual coupon payments starting on 12/31/2006 and will mature on 12/31/2012. a. What was the market rate of interest on 1/1/2003, when The Flame issued its zero-coupon Series A bond? (4 points) b. What is the book value of the zero-coupon bond on 1/1/2006? (4 points) c. What is the market rate related to Series A and Series B bonds on 1/1/2006? (4 points) 1d. Provide the journal entry for the issuance of Series B bonds on 1/1/2006? (5 points) 2Question IV - Continued e. Provide the journal entries to record the interest expense in 2006 (for all bonds outstanding) assuming the company uses the effective-interest method. (8 points) Series A bonds:Series B
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