In: Accounting
On june1, 2020 Jetcom inventors Inc. issued a $440,000
12%, three year bond. Interest is to be paid semiannually beginning
December 1, 2020.
Required:
a. Calculate the issue price of the bond assuming a market interest
rate of 13%.
b. Using the effective interest method, Prepare an amortization
schedule.
part 1
Prepare journal entries to the following
a. Issuance of the bonds on January 1, 2020
b. Payment of interest on December 1, 2020
c. Adjusting entry to accrue bond interest and discount
amortization on January 31, 2020
Assume Jetcom Inventors Inc. has a January 31 year end
part 2
Show how the bonds will appear on the balance sheet under non-
current liabilities at January 31, 2022
a)
Compute issue price of the bonds as follows:
Semiannual rate = 13.5%/2 = 6.5%
Time = 3 years 2 = 6
Interest payments = $440,000 12% 6/12 = $26,400
Present value of annuity [A] = $26,400 PVAF(6.5%, 6)
= $26,400 4.84101
= $127,803
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Present value of maturity value [B] = $440,000 PVF(6.5%, 6)
= $440,000 0.68533
= $301,545
Issue price of the bond [A+B] = $127,803 + $301,545
= $429,348
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b)
Prepare Amortization schedule as follows:
______________________________________________________________________
Prepare the journal entries as follows:
Trn. | Genral Journal | Debit | Credit |
a | Cash | $429,348 | |
Discount on issue | $10,652 | ||
Bond payable | $440,000 | ||
b | Interest expense | $26,400 | |
Cash | $26,400 |