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In: Accounting

Madison Corporation is authorized to issue $500,000 of 5-year bonds dated June 30, 2016, with a...

Madison Corporation is authorized to issue $500,000 of 5-year bonds dated June 30, 2016, with a stated rate of interest of 11%. Interest on the bonds is payable semiannually, and the bonds are sold on June 30, 2016.

Required:

Determine the proceeds that the company will receive if it sells the following: (Click here to access the tables to use with this exercise and round your answers to two decimal places, if necessary.)

1. The bonds to yield 12% $
2. The bonds to yield 10%

$

Bryan Company issued $500,000 of 10% face value bonds on January 1, 2016, for $486,000. The bonds are due December 31, 2018, and pay interest semiannually on June 30 and December 31. Bryan uses the straight-line amortization method.

Required:

Prepare the journal entries to record the issuance of the bonds and the first two interest payments.

Solutions

Expert Solution

Q1. Q2.
par value of bondds 500000 Par value f bonds 500000
Semi annual cash interest (500000*11%*6/12) 27500 Issue price 486000
Total discount 14000
Annuity PVF for 10 periods at 6% 7.36009 Divide: Number of periods: 6
PVF at 6% for 10th period 0.55839 Discount amortized each period 2333.333
Present value of interest payments 202402.5 Cash semi annual interest (500000*10%*6/12) 25000
Present value of Maturity value 279195 Interest expenses 27333
Price of bonds 481597.5
Journal entries:
Date Accounts title and explanations Debit $ Credit $
at Yield of 10% 01.01.16 Cash account 486000
par value of bondds 500000 Discount on Bonds payable 14000
Semi annual cash interest (500000*11%*6/12) 27500     Bonds Payable 500000
Annuity PVF for 10 periods at 5% 7.72173 30.06.16 Interest expenses 27333
PVF at 5% for 10th period 0.61391      Cash account 25000
Present value of interest payments 212347.6      Discount on bonds payable 2333
Present value of Maturity value 306955
Price of bonds 519302.6 31.12.16 Interest expenses 27333
     Cash account 25000
     Discount on bonds payable 2333

ekkarill92 answered 3 years ago
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