In: Accounting
Matt Winne, Inc. issued $700,000 of 9%, five-year bonds payable on January 1, 2018.
The market interest rate at the date of issuance was 6%, and the bonds pay interest semiannually.
1. |
How much cash did the company receive upon issuance of the bonds payable? (Round to the nearest dollar.) |
2. |
Prepare an amortization table for the bond using the effective-interest method, through the first two interest payments. (Round to the nearest dollar.) |
3. |
Journalize the issuance of the bonds on January 1,
2018, and the first and second payments of the semiannual interest amount and amortization of the bonds on June 30,2018,and December 31, 2018. Explanations are not required. |
Answer 1.
Face Value of Bonds = $700,000
Annual
Coupon Rate = 9.00%
Semiannual Coupon Rate = 4.50%
Semiannual Coupon = 4.50% * $700,000
Semiannual Coupon = $31,500
Time to
Maturity = 5 years
Semiannual Period = 10
Annual
Interest Rate = 6.00%
Semiannual Interest Rate = 3.00%
Issue
Value of Bonds = $31,500 * PVIFA(3.00%, 10) + $700,000 *
PVIF(3.00%, 10)
Issue Value of Bonds = $31,500 * 8.53020 + $700,000 * 0.74409
Issue Value of Bonds = $789,564
Answer 2.
Answer 3.