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Matt Winne​, Inc. issued $700,000 of 9​%, five​-year bonds payable on January​ 1, 2018. The market...

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.

Solutions

Expert Solution

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.

ekkarill92 answered 1 year ago
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