Distributors sells snack and candy to local stores. On March 1, 2010, Borges issued $4,000,000 of...

Distributors sells snack and candy to local stores. On March 1, 2010, Borges issued $4,000,000 of 5-year, 13% bonds at an effective interest rate of 11%. Interest is payable semiannually on March 1 and September 1. Journalize the entries to record the following:

Sale of bonds on March 1, 2010. Use the tables on present values in Appendix A of your textbook to determine the present value of the bond issue. Round to nearest dollar.

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First interest payment on September 1, 2010, and amortization of bond premium for six months, using the straight-line method. Round to the nearest dollar.

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Expert Solution

The Issue price of the Bond

· The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.

· The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

· Here, the calculation of the Bond Price using financial calculator is as follows

Variable	Financial Calculator Key	Figure
Par Value/Face Value of the Bond [$4,000,000]	FV	4,000,000
Coupon Amount [$4,000,000 x 13% x ½]	PMT	260,000
Market Interest Rate or Yield to maturity on the Bond [11.00% x ½]	1/Y	5.50
Maturity Period/Time to Maturity [5 Years x 2]	N	10
Bond Price/Current market price of the Bond	PV	?

Price of the Bond (PV) = $4,301,505

Date	Particulars	Debit	Credit
March 1	Cash	4301505
	To premium on bond payable		301505
	To bond payable		4000000

Sep 1	Interest expense (260000-30151)	229849
	Premium on bond payable (301505/10)	30151
	To cash (400000013%1/2)		260000

ekkarill92 answered 2 years ago

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