Question

On January 1, 2018, Instaform, Inc., issued 10% bonds with a face amount of $54 million, dated January 1. The bonds mature in 2037 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually. (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-a. Determine the price of the bonds at January 1, 2018.
1-b. Prepare the journal entry to record their issuance by Instaform.
2-a. Assume the market rate was 9%. Determine the price of the bonds at January 1, 2018.
2-b. Assume the market rate was 9%. Prepare the journal entry to record their issuance by Instaform.
3. Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt.

Answer 1

1a. Price of the bonds at January 1, 2018 is $45,875,000

Table value is based on:
n=40
i= 6%
Cash Flow	Table Value	Amount	Present Value
Par (maturity value)	0.09722	54,000,000	5,249,998
Interest (semi-annual)	15.04630	2,700,000	40,625,002
Issue Price			45,875,000

1b. Journal entry to record their issuance by Instaform is:

Year	Particulars	L.F	Debit ($)	Credit ($)
2018
Jan-01	Cash		45,875,000
	Discount on Bonds Payable		8,125,000
	Bonds Payable			54,000,000
	(For Bonds issued at discount)

2a. Price of the bonds at January 1, 2018 when market rate was 9%

Table value are based on:
n=40
i= 4.5%
Cash Flow	Table Value	Amount	Present Value
Par (maturity value)	0.17193	54,000,000	9,284,150
Interest (semi-annual)	18.40158	2,700,000	49,684,278
Issue Price			58,968,428

2b. Journal entry to record their issuance by Instaform is:

Year	Particulars	L.F	Debit ($)	Credit ($)
2018
Jan-01	Cash		58,968,428
	Premium on Bonds Payable			4,968,428
	Bonds Payable			54,000,000
	(For Bonds issued at premium)