Question

When Patey Pontoons issued 4% bonds on January 1, 2018, with a face amount of $580,000, the market yield for bonds of similar risk and maturity was 5%. The bonds mature December 31, 2021 (4 years). Interest is paid semiannually on June 30 and December 31. (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: 5. What is the amount related to the bonds that Patey will report in its balance sheet at December 31, 2018?
6. What is the amount related to the bonds that Patey will report in its income statement for the year ended December 31, 2018? (Ignore income taxes.)
7. Prepare the appropriate journal entries at maturity on December 31, 2021.

Answer 1

Part 5 : Amount related to Bond to be report in Balance Sheet at 31 Dec 2018
Bonds Payable	580000
Discount On Bonds Payable	15,974
	564,026

Part 6 : Amount related to Bond to be report in Income Statement at 31 Dec 2018
30-Jun-18	13,980
31-Dec-18	14,040
	28,020

Part 7: Appropriate Journal Entry on Maturity at 31 Dec 21
Interest Expense	14,429
Discount On BP	2,829
Cash		11,600
Bonds Payable	580000
Cash		580000

Working Note 1:

PV of Interest	11600	2.50%	8 Period	7.1701	83,174
PV of Face	580000	2.50%	8 Period	0.8207	476,033
Value of Bond	559,207

Working Note 2:

	Cash Interest	Effective Interest	Discount	Outstanding
	580000*2%	2.5%* Balance	Amortization	Balance
01-Jan-18				559,207
30-Jun-18	11600	13,980	2,380	561,587
31-Dec-18	11600	14,040	2,440	564,026
30-Jun-19	11600	14,101	2,501	566,527
31-Dec-19	11600	14,163	2,563	569,090
30-Jun-20	11600	14,227	2,627	571,718
31-Dec-20	11600	14,293	2,693	574,410
30-Jun-21	11600	14,360	2,760	577,171
31-Dec-21	11600	14,429	2,829	580,000