Question

14.9.1

On February 1, 2018, Cromley Motor Products issued 6% bonds, dated February 1, with a face amount of $55 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 8%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $55,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of $1 and PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:

1. Determine the price of the bonds issued on February 1, 2018
2. a. Prepare amortization schedules that indicate Cromley’s effective interest expense for each interest period during the term to maturity.

b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest paid during the term to maturity.

3.    Prepare the journal entries to record the issuance of the bonds by Cromly and Barnwell’s    investment on February 1, 2018.

4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020.

Determine the price of the bonds issued on February 1, 2018. (Enter your answer in whole dollars.)

Price of the bonds =__________________

Prepare amortization schedules that indicate Cromley’s effective interest expense for each period during the term to maturity. (Enter your answers in whole dollars.)

Payment Number	Cash Payment	Effective Interest	Increase in Balance	Outstanding Balance
1
2
3
4
5
6
7
8
Totals

Answer 1