Question
In: Accounting
On January 1, 2018, Instaform, Inc., issued 14% bonds with a face amount of $50 million,...
On January 1, 2018, Instaform, Inc., issued 14% bonds with a
face amount of $50 million, dated January 1. The bonds mature in
2037 (20 years). The market yield for bonds of similar risk and
maturity is 16%. Interest is paid semiannually. (FV of $1, PV of
$1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use
appropriate factor(s) from the tables provided.)
Required:
1-a. Determine the price of the bonds at January 1,
2018.
1-b. Prepare the journal entry to record their
issuance by Instaform.
2-a. Assume the market rate was 12%. Determine the
price of the bonds at January 1, 2018.
2-b. Assume the market rate was 12%. Prepare the
journal entry to record their issuance by Instaform.
3. Assume Broadcourt Electronics purchased the
entire issue in a private placement of the bonds. Using the data in
requirement 2, prepare the journal entry to record the purchase by
Broadcourt.
- Req 1A
- Req 1B
- Req 2A
- Req 2B
- Req 3
Determine the price of the bonds at January 1, 2018. (Enter your answer in whole dollars.)
| 1A |
|
2B
repare the journal entry to record their issuance by Instaform. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)
2A
Assume the market rate was 12%. Determine the price of the bonds at January 1, 2018. (Enter your answer in whole dollars.)
|
2B
ransaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)
3
Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)
Solutions
Expert Solution
| 1-a. Determine the price of the bonds at January 1, 2018. | ||
| Face Value | $ 5,00,00,000.00 | Million |
| Semiannual Coupon Rate = 14%/2 | 7% | |
| Semiannual Coupon Payment | $ 35,00,000.00 | |
| Period = 20 x 2 | 40 | |
| Rate = 16%/2 | 8% | |
| Present value of an ordinary annuity of $1:n= 40,i= 8% PVOA (8%, 40) | 11.92500 | |
| Present value of $1:n= 40,i= 8% ,PV(8%,40) | 0.04600 | |
| Present value of Coupon Payments = $3,500,000 x PVOA(8%,40) | $ 4,17,37,500.00000 | |
| Present value of Principal = $50,000,000 x PV(8%,40) | $ 23,00,000.000 | |
| Price of the bonds at January 1, 2018 | $ 4,40,37,500.00000 | |
| 1-b. Prepare the journal entry to record their issuance by Instaform. | ||
| Cash | $ 4,40,37,500.00000 | |
| Discount on Bonds Payable | $ 59,62,500.00 | |
| Bonds Payable | $ 5,00,00,000.00 | |
| 2-a. Assume the market rate was 12%. Determine the price of the bonds at January 1, 2018. | ||
| Face Value | $ 5,00,00,000.00 | Million |
| Semiannual Coupon Rate = 14%/2 | 7% | |
| Semiannual Coupon Payment | $ 35,00,000.00 | |
| Period = 20 x 2 | 40 | |
| Rate = 12%/2 | 6% | |
| Present value of an ordinary annuity of $1:n= 40,i= 6% PVOA (6%, 40) | 15.04600 | |
| Present value of $1:n= 40,i= 6% ,PV(6%,40) | 0.09720 | |
| Present value of Coupon Payments = $3,500,000 x PVOA(6%,40) | $ 5,26,61,000.00000 | |
| Present value of Principal = $50,000,000 x PV(6%,40) | $ 48,60,000.000 | |
| Price of the bonds at January 1, 2018 | $ 5,75,21,000.00000 | |
| 2-b. Prepare the journal entry to record their issuance by Instaform. | ||
| Cash | $ 5,75,21,000.00 | |
| Premium on Bonds Payable | $ 75,21,000.00 | |
| Bonds Payable | $ 5,00,00,000.00 | |
| 3) Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) | ||
|
Investment in Bonds |
$ 5,00,00,000.00 | |
| Premium on Bonds Payable | $ 75,21,000.00 | |
| Cash | $ 5,75,21,000.00 | |
ekkarill92 answered 7 months agoRelated Solutions
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