In: Accounting
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.
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.)
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 | |