Question

National Orthopedics Co. issued 8% bonds, dated January 1, with a face amount of $600,000 on January 1, 2013. The bonds mature on December 31, 2016 (4 years). For bonds of similar risk and maturity the market yield was 10%. 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:
1.	Determine the price of the bonds at January 1, 2013. Table values are based on: n = i = Cash Flow Amount Present Value Interest Principal Price of bonds

2.	Prepare the journal entry to record their issuance by National on January 1, 2013. (If no entry is required for a transaction, select "No journal entry required" in the first account field.)

3.

Prepare an amortization schedule that determines interest at the effective rate each period. Semiannual Interest Period-End Cash Interest Bond Interest Expense Discount Amortization Carrying Value 01/01/2013 06/30/2013 12/31/2013 06/30/2014 12/31/2014 06/30/2015 12/31/2015 06/30/2016 12/31/2016 Total

4.	Prepare the journal entry to record interest on June 30, 2013. (If no entry is required for a transaction, select "No journal entry required" in the first account field.)
	5. Prepare the appropriate journal entries at maturity on December 31, 2016. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.) 1 Record the interest expense on December 31, 2016. 2 Record the retirement of the bond at maturity on December 31, 2016.

Answer 1

	principal				600,000
	interest paid on bonds 600,000*4%=				24000
	For Principal use PV of $1 table at 5% for 8 years
	for interest use PV of ordinary annuity table at 5% for 8 years
1)	Calculation of bonds issue price
	table values are based on
	n=	8
	i=	5.00%
	Cash flow		Amount	PV
	principal		600,000	406104		(600,000*.67684)
	interest expense		24000	155117		(24000*6.46321)
	price of bonds			561221
	(please use factor table as given in your question )
2)	Date	Accoounting titles & Explanations				Debit	Credit
	1/1/2013	Cash				561221
		Discount on bonds payable				38,779
		Bonds payable					600,000
3)	interest	cash	bond	discount	carring
	period	interest	interest	amortizatioon	value
	end		expense
			5.00%
	1/1/2013				561221
	06/30/13	24000	28061	4061	565282
	12/31/13	24000	28264	4264	569546
	06/30/14	24000	28477	4477	574024
	12/31/14	24000	28701	4701	578725
	06/30/15	24000	28936	4936	583661
	12/31/15	24000	29183	5183	588844
	06/30/16	24000	29442	5442	594286
	12/31/16	24000	29714	5714	600000
	total	192000	230779	38779
4)	Date	Accoounting titles & Explanations				Debit	Credit
	30/6/2013	interest expense				28061
		Discount on bonds					4061
		cash					24000
	Date	Accoounting titles & Explanations				Debit	Credit
	12/31/16	interest expense				29714
		Discount on bonds					5714
		cash					24000
	31-Dec	bonds payable				600,000
		cash					600,000