Question

On February 1, 2018 Cromley Motor Products issued 10% bonds, dated February 1, with a face amount of $90 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 12%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $90,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31.use FVof 1$, PV of 1$ etc.)

Required: 1. Determine the price of the bonds issued on February 1, 2018

PRICE OF THE BOND ……

2a. prepare amortization schedules that indicate Cromley’s effective interest expense for each period during the term to maturity.

Payment Number Cash Payment Effective Interest Increase in Balance Outstanding Balance

1

2

3

4

5

6

7

8

Totals

2b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest period during the term to maturity. (Enter your answers in whole dollars.) Payment Number Cash Payment Effective Interest Increase in Balance Outstanding Balance

1

2

3

4

5

6

7

8

Totals

3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell’s investment on February 1, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) a. Record the issuance of the bonds by Cromley. On February 1, 2018 b. Record the Bond investment by Barnwell. On February 1, 2018 4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

a. Record the payment of interest for Cromley Company., on July 31, 2018

b. Record the accrued interest for Cromley Company. On December 31, 2018

c. Record the payment of interest for Cromley Company, on January 31, 2019

d. Record the payment of interest for Cromley Company. On July 31, 2019

e. Record the accrued interest for Cromley Company. On December 31, 2019

f. Record the payment of interest for Cromley Company. On January 31, 2020

5. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

a. Record the payment of interest for Barnwell Company., on July 31, 2018

b. Record the accrued interest for Barnwell Company. . On December 31, 2018

c. Record the receipt of interest for Barnwell Company. on January 31, 2019

d. Record the receipt of interest for Barnwell Company. On July 31, 2019

e. Record the accrued interest for Barnwell Company. On December 31, 2019

f. Record the receipt of interest for Barnwell Company. On January 31, 2020

Answer 1