On January 1 of this year, Bochini Corporation sold a $10 million, 8.25 percent bond issue.

On January 1 of this year, Bochini Corporation sold a $10 million, 8.25 percent bond issue. The bonds were also dated January 1, had a yield of 8 percent, pay interest each December 31, and mature 10 years from the date of issue. Prepare the journal entry to record the interest payment on December 31 of this year. Use effective-interest amortization and a premium account. Round time value factor to 4 decimal places. Enter your answers in dollars not in millions rounded to the nearest whole dollar.

Expert Solution

Issue price of the bonds = Present value of principal + Present value of interest payments

= Face value of the bonds issued x PVIF (8%, 10 years) + Annual interest payment x PVIAF (8%, 10 years)

= $10,000,000*0.4632 + ($10,000,000*8.25%)*6.7101

= $10,167,833

Hence the issue price of the Bonds is $10,167,833.

Date	Account Titles and Explanation	Debit	Credit
December 31	Interest expense ($10,167,833*8%)	$813,427
	Premium on Bonds Payable	$11,573
	Cash ($10,000,000*8.25%)		$825,000
	(To record the interest payment on December 31 of this year)

DEEPIKA GOYAL answered 2 years ago

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