Question

In: Accounting

On Jan 1, 2019 Noelle’s Napkin Company issues $4,000,000 8% 20 year bonds at an EFFECTIVE...

On Jan 1, 2019 Noelle’s Napkin Company issues $4,000,000 8% 20 year bonds at an EFFECTIVE Interest Rate of 6% and interest payable semi-annually on June 30th and Dec 31st .

Required:

USE the Present Value of a $1 (lumpsum) and Present value of an Annuity to calculate the Issue value of the BOND.

  1. Record the issuance of the bonds
  2. Prepare the Effective Interest Schedule for 5 years
  3. Record the interest entries for Jun 30th& Dec 31st 2019
  4. What is the carrying value of the BOND on Dec 31st 2021?

Solutions

Expert Solution

Semi annual cash interest = 4000,000*8%*6/12 = 160000
n= 40
I = 3%
Cashflows Amount$ PVf Present value
Semi annual cash interest    1,60,000 23.11477 3698363
Maturity value 40,00,000 0.306557 1226228
Price of bonds 4924591
Journal entry
S.no. Accounts title and explanations Debit $ Credit $
01.01.19 Cash account 4924591
    Bonds payable 40,00,000
    Premium on bonds payable 9,24,591
(for issuance of bonds)
Amort Chart
Period Cash Int Int exp Premium Unamort Carrying
amortized Premium Value of bonds
01.01.19 924591 4924591
30.06.19 160000 147738 12262 912329 4912329
31.12.19 160000 147370 12630 899699 4899699
30.06.20 160000 146991 13009 886690 4886690
31.12.20 160000 146601 13399 873290 4873290
30.06.21 160000 146199 13801 859489 4859489
31.12.21 160000 145785 14215 845274 4845274
30.06.22 160000 145358 14642 830632 4830632
31.12.22 160000 144919 15081 815551 4815551
30.06.23 160000 144467 15533 800017 4800017
31.12.23 160000 144001 15999 784018 4784018
Req c.
Journal entry
S.no. Accounts title and explanations Debit $ Credit $
30.06.19 Interest expense 147738
Premium on bonds payable 12262
     Cash account 160000
(for interest expense incurred)
31.12.19 Interest expense 147370
Premium on bonds payable 12630
     Cash account 160000
(for interest expense incurred)
Req d.
Balance Sheet
Bonds payable-Gross 40,00,000
Add: Unamortized premium 845274
Bonds payable-Net 48,45,274

ekkarill92 answered 1 year ago
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