On May 1, 2020, Johnson Corporation issued $300,000, ten-year, 12% bonds which were priced to yield...

On May 1, 2020, Johnson Corporation issued $300,000, ten-year, 12% bonds which were priced to yield 14%. The bonds were dated March 1, 2020, and pay interest semiannually on March 1 and September 1. Johnson is a calendar year corporation. Determine the issue price of the bonds and prepare the September 1, 2020 journal entry for Johnson Corporation.

Expert Solution

Issue price:

Cash interest = $300,000 x 6% =$18,000


Present value of cash interest	$190,692
[$18,000 x 10.59401 PV annuity factor at 7% for 20 periods]
Present value of face value	$77,526
[$300,000 x 0.25842 PV factor at 7% for 20 periods]
Price of the bond	$268,218
Add: Accrued interest [Mar 1 2020 to May 1 2020] = $300,000 x 12% x 2/12]	$6,000
Cash received from the bond	$274,218

Journal Entry:

Date	Account title and explanation	Debit	Credit
Sept 1, 2020	Interest payable	$6,000
	Interest expense [($268,218 x 7% ) - $6,000]	$12,775
	Discount on bonds payable		$775
	Cash		$18,000
	[To record payment of interest]

ekkarill92 answered 2 years ago

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