Question

In: Accounting

On January 1, 2015 $20,000,000 of 20 year bonds were issued with a coupon rate of...

On January 1, 2015 $20,000,000 of 20 year bonds were issued with a coupon rate of 6.5% when the market rate was 6%. Interest is paid every six months on June 30th and December 31st. Prepare the following journal entries and show your calculations as to how you arrived at the numbers.

1)Issuance of bonds on January 1, 2015

2) Payment of interest on June 30th and December 31st of both 2015 and 2016.

3) What is the carrying value of the bonds that would be presented on the balance sheet at December 31st 2016.

Solutions

Expert Solution

Face Value of Bonds = $20,000,000

Annual Coupon Rate = 6.50%
Semiannual Coupon Rate = 3.25%
Semiannual Coupon = 3.25% * $20,000,000
Semiannual Coupon = $650,000

Time to Maturity = 20 years
Semiannual Period = 40

Annual Interest Rate = 6.00%
Semiannual Interest Rate = 3.00%

Issue Value of Bonds = $650,000 * PVIFA(3.00%, 40) + $20,000,000 * PVIF(3.00%, 40)
Issue Value of Bonds = $650,000 * 23.11477 + $20,000,000 * 0.30656
Issue Value of Bonds = $21,155,801

Amortization table for 2015 and 2016 is:

Answer 1 and 2.

Answer 3.

Carrying value of the bonds is $21,091,683

ekkarill92 answered 1 month ago
Next > < Previous

Related Solutions

On January 1 of Year 1, Lily Company issued bonds with a coupon rate of 7%...
On January 1 of Year 1, Lily Company issued bonds with a coupon rate of 7% and a face amount of $3,000. The bond interest payments are made twice each year on June 30 and on December 31. The bonds mature in 12 years. The market interest rate for bonds with the same degree of riskiness is 10% compounded semi-annually. On January 1 of Year 1,Investor Company purchased all of the Lily Company bonds when they were issued. Investor Company...
1. Assume Apple issued bonds with a 20 year maturity at a coupon rate of 8.4...
1. Assume Apple issued bonds with a 20 year maturity at a coupon rate of 8.4 percent. The bonds make semiannual payments, and the YTM on these bonds is 7.5 percent. What is the semiannual coupon payment? A.$37.50 B.$42 C.$84 D.$75 2. Is the bond trading at par, discount, or premium? A.Par B. Discount C.Premium D.All the above 3. What is the yield that should be used to calculate the bond price? A. 7.5% B.4.35% C. 8.4% D.4.8% 4. What...
On January 1, 2015, Brightstar Inc. issued $1,000,000 of 8%, semiannual 3-year coupon bonds. 1) The...
On January 1, 2015, Brightstar Inc. issued $1,000,000 of 8%, semiannual 3-year coupon bonds. 1) The market interest rate on January 1, 2015 was 10%. Was the bond issued at par, a premium, or a discount?
On January 1, 2015 Sprint issues $300,000 of 12-year bonds with a coupon rate of 9.375%...
On January 1, 2015 Sprint issues $300,000 of 12-year bonds with a coupon rate of 9.375% when the market rate for similar bonds is 10%.  Interest is paid semi-annually on June 30th and December 31st each year. Prepare the following journal entries: Issuance of the bonds on January 1, 2015 Record the payment of interest on both June 30, 2015 and December 31, 2015. On the balance sheet for December 31, 2015 what will be the carrying value of the bonds...
On January 1, 2015, Lantau Corp. issued $600,000 of 20 year, 11% bonds for $554,860, yielding...
On January 1, 2015, Lantau Corp. issued $600,000 of 20 year, 11% bonds for $554,860, yielding a market (yield) rate of 12%. Interest is payable semiannually on June 30 and December 31 a) Confirm the bond issue price b) Prepare journal entries to record the bond issuance, semiannual interest payment and discount amortization on June 30, 2015, and semi-annual interest payment and discount amortization on December 31, 2015. Use the effective interest rate. c) Lantau elected to report the bonds...
on January 1, 2014 baseline Corp. issued $20,000,000 of 12 %, Twenty-year bonds at 102. the...
on January 1, 2014 baseline Corp. issued $20,000,000 of 12 %, Twenty-year bonds at 102. the bonds are callable at 105. Interest on the bond is payable annualy. Baseline uses the Stright-line method to amortize bond premium or discount. On january1, 2018, Baseline Called 5,000,000 of the issue and retired the bond. Required a) prepare the journal entry to record the issuance of the bonds on January 1, 2014 b) prepare the journal entry to record the retirement of the...
on January 1, 2014 baseline Corp. issued $20,000,000 of 12 %, Twenty-year bonds at 102. the...
on January 1, 2014 baseline Corp. issued $20,000,000 of 12 %, Twenty-year bonds at 102. the bonds are callable at 105. Interest on the bond is payable annualy. Baseline uses the Stright-line method to amortize bond premium or discount. On january1, 2018, Baseline Called 5,000,000 of the issue and retired the bond. Required a) prepare the journal entry to record the issuance of the bonds on January 1, 2014 b) prepare the journal entry to record the retirement of the...
Adcock Company issued $96,000, 8%, 20-year bonds on January 1, 2015, at 102. Interest is payable...
Adcock Company issued $96,000, 8%, 20-year bonds on January 1, 2015, at 102. Interest is payable semiannually on July 1 and January 1. Adcock uses straight-line amortization for bond premium or discount. 1) Prepare the journal entry to record the issuance of the bonds 2) Prepare the journal entry to record the payment of interest and the premium amortization on July 1, 2015, assuming that interest was not accrued on June 30. 3) Prepare the journal entry to record the...
Dexter Mills issued 20-year bonds a year ago at a coupon rate of 10.2 percent. The...
Dexter Mills issued 20-year bonds a year ago at a coupon rate of 10.2 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 9.2 percent, what is the current yield of the bond?                 Question 33 options: 10.35%                 10.28%                 9.79%                 9.37% 9.29%
BONDS : Huskies Corp. issued 9-year $750,000 bond on January 1, 2006 with coupon rate of...
BONDS : Huskies Corp. issued 9-year $750,000 bond on January 1, 2006 with coupon rate of 10%. The bond pays interest semiannually every June 30 and December 31, with the principal to be paid at the end of year 9. The effective market interest rate at the issuance date is 8%. a. Calculate the proceeds and show clearly what you use for RATE, NPER, PMT, FV ? b. What journal entry was recorded at issuance? c. What annual coupon rate...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT