Question

Issue Price of a Bond
Tide, Inc., plans to issue $1,300,000 of 9% bonds that will pay interest semiannually and mature in 10 years. Assume that the effective interest is 8% per year compounded semiannually. Calculate the selling price of the bonds.

Use financial calculator or Excel to calculate answers. Round answers to the nearest whole number.

Selling price of bonds is

$Answer

QUESTION 2

Bonds Payable Journal Entries; Effective Interest Amortization
On December 31, 2011, Daggett Company issued $800,000 of ten-year, 9% bonds payable for $745,512, yielding an effective interest rate of 10%. Interest is payable semiannually on June 30 and December 31. Prepare journal entries to reflect (a) the issuance of the bonds, (b) the semiannual interest payment and discount amortization (effective interest method) on June 30, 2012, and (c) the semiannual interest payment and discount amortization on December 31, 2012. Round amounts to the nearest dollar.

General Journal
Date	Description	Debit	Credit
a.)
Dec.31	Cash	$Answer	$Answer
	AnswerCashDiscount on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	AnswerCashDiscount on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	To record issuance of bonds.
b.)
Jun.30	AnswerCashDiscount on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	AnswerCashDiscount on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	Cash	Answer	Answer
	To record semiannual interest payment and discount amortization.
c.)
Dec.31	AnswerCashDiscount on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	AnswerCashDiscount on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	Cash	Answer	Answer

QUESTIPN 3

Premium and Discount of a Bond or Debenture
The Johnson & Johnson Company reported the following borrowings in a prior annual report:

		Effective Interest
Borrrowing ($ in millions)	Amount	Rate (%)
a. 3.00 percent, zero-coupon bond, due 2020	$202	3.00
b. 4.95 percent debentures, due 2033	500	5.00
c. 3.80 percent debentures, due 2017	500	3.82
d. 6.95 percent bonds, due 2025	293	6.90

For each borrowing, indicate whether the bond or debenture was originally sold at its face value, a discount, or a premium.

a.	AnswerDiscountFace valuePremium
b.	AnswerDiscountFace valuePremium
c.	AnswerDiscountFace valuePremium
d.	AnswerDiscountFace valuePremium

Answer 1

Solution 1:

Face Value of Bond = $1,300,000

Coupon rate = 9% = 4.5% Half Yearly

Market rate = 8% = 4% half yearly

Period = 10 years = 20 half years

Selling Price of the Bond = Present Value of semi annual Interest payment + Present value of Maturity amount

= ($1,300,000*4.5%) *Cumulative PV Factor for @4% for 20 periods + $1,300,000*PV Factor @4% at 20th period

= $58500*13.590326 + $1300,000*0.456387

= $795,034 + $593,303

= $1,388,337

Solution 2:

Journal Entries - Daggett Company
Date	Description	Debit	Credit
31-Dec	Cash A/c Dr	$7,45,512
(a)	Discount on Bond Payable Dr	$54,488
	To bonds payable		$8,00,000
	(To record issuance of bonds)
30-Jun	Interest Expense Dr ($745,512*10%*6/12)	$37,276
(b)	To Discount on Bond Payable		$1,276
	To Cash ($800,000*9%*6/12)		$36,000
	(To record first semiannual Interest and Amortization of discount)
31-Dec	Interest Expense Dr ($745512+1276)*10%*6/12)	$37,339
(c )	To Discount on Bond Payable		$1,339
	To Cash ($240,000*6%*6/12)		$36,000
	(To record second semiannual Interest and Amortization of discount)

Solution 3:

	Coupon Rate	Effective Rate	Issued at (Answer)
a.	3%	3%	Face Value
b.	4.95%	5%	Discount
c.	3.80%	3.82%	Discount
d.	6.95%	6.90%	Premium