Question
In: Accounting
Problem 1 Company: XYZ Company Date of bonds:  
Problem 1
Company: XYZ Company
Date of bonds: January 1, 2019
Term: 4 years
Face (Par) Value: $1,000
Stated interest rate: 10%
Effective interest rate: 12%
Interest payment dates on January 1 and July 1
- Compute the market price of the bonds and journalize the issuance of the bonds.
- Prepare a schedule to amortize the premium or discount using the effective interest method of amortization for the first year and journalize the entries to record the interest payment on July 1, 2019 and January 1 2020.
- Interest expense for the year ended December 31, 2019 is $______________.
Solutions
Expert Solution
Market
interest rate = 12%
Market
interest rate for a semiannual period = 12% / 2 = 6%
r = 0.06
(per semiannual period),
n = 8
(semiannual periods)
Present value of
principal
= $1,000 x
Present value factor for a single payment (6%, 8
periods)
= $1,000 x
0.6274
=
$627
Interest
payment each semiannual period
= $1,000 x
5%
=
$50
(Coupon
rate for a semiannual period = 10% / 2 = 5%.)
Present value of interest
payments
= Interest
payment each semiannual period
x Present value factor for an ordinary annuity (6%, 8
periods)
= ($1,000
x 5%) x 6.2098
=
$310
Price of
bonds
= Present
value of principal + Present value of interest
payments
= $627 +
$310
=
$937
The bonds
will be sold at a
$63discount from the face
amount.
($1,000 -
$937 = $63)
Journal Entry for Issuance :
Dr. Cash 937
Dr. Discount 63
Cr. Bonds Payable 1,000
| Date | Interest paid | Effective interest rate for semiannual period | Interest expense | Amortization of discount | Present value of bonds | |
| 1/1/2019 | $937 | |||||
| 7/1/2019 | $50 | 6% | $56 | $6 | $943 | |
| 1/1/2020 | $50 | 6% | $57 | $7 | $950 | |
| 7/1/2020 | $50 | 6% | $57 | $7 | $957 | |
| 1/1/2021 |
|
6% | $58 | $8 | $965 | |
| 7/1/2021 |
|
6% | $58 | $8 | $973 | |
| 1/1/2022 |
|
6% | $58 | $8 | $981 | |
| 7/1/2022 |
|
6% | $59 | $9 | $990 | |
| 1/1/2023 |
|
6% | $60 | $10 | $1,000 | |
Journal Entry on 7/1/2019:
a) Dr. Interest Exp. 50
Cr. Cash 50
b) Dr. Interest exp. 6
Cr. Bond discount 6
Journal Entry on 1/1/2020:
a) Dr. Interest Exp. 50
Cr. Cash 50
b) Dr. Interest exp. 7
Cr. Bond discount 7
Interest Expense for the year ended December 31,2019 is $ 56
ekkarill92 answered 2 years agoRelated Solutions
Problem 1 Company: XYZ Company Date of bonds:  
Problem 1
Company:
XYZ Company
Date of
bonds:
January 1, 2019
Term:
4 years
Face (Par)
Value:
$1,000
Stated interest
rate: 10%
Effective interest rate: 12%
Interest payment dates on January 1 and July 1
Compute the market price of the bonds and journalize the
issuance of the bonds.
Prepare a schedule to amortize the premium or discount using
the effective interest method of amortization for the first year
and journalize the entries to record the interest payment on July...
Answer two of the following three Problems Problem 1 Company: XYZ Company Date of bonds: &nbs
Answer two of the following three Problems
Problem 1
Company:
XYZ Company
Date of
bonds:
January 1, 2019
Term:
4 years
Face (Par)
Value:
$1,000
Stated interest
rate: 12%
Effective interest rate: 10%
Interest payment dates on January 1 and July 1
Compute the market price of the bonds and journalize the
issuance of the bonds.
Prepare a schedule to amortize the premium or discount using
the effective interest method of amortization for the first year
and journalize the entries...
PROBLEM 1 XYZ Company acquired as a long - term investment $440 million of 8% bonds,...
PROBLEM
1
XYZ
Company
acquired as a long
-
term investment $440 million of 8% bonds,
on July 1,
2018
, and
management has the positive intent and
ability to hold the bonds until maturity
(three years, until
June 30
, 2021)
. The market interest rate
was 5% for bonds of similar risk and maturity.
XYZ
paid
$500 million for the bonds;
it
will receive interest semiannually on June 30 and December
31
.
a)
Prepare the journal entry...
Problem 1 On January 1, 2015 XYZ Company issued $100,000 of 10 year 10% bonds dated...
Problem 1 On January 1, 2015 XYZ Company issued $100,000 of 10
year 10% bonds dated January 1, 2015. Interest on the bonds are
payable semi-annually. The market rate of interest for a similar
bond with similar risk factors was also 10% Required – prepare all
the necessary journal entries and T-accounts for 2015 and 2016 and
the journal entry and T-account upon bond maturity on December 31,
2019
XYZ Company issued 10,000 shares of common stock for $1,000,000.
The...
1. XYZ Company is a startup company, and it has purchased inventory as follows: Date Quantity...
1. XYZ Company is a startup company, and it has purchased
inventory as follows:
Date
Quantity
Price
2/1/16
1000
1.05
3/1/16
500
1.10
5/1/16
800
1.00
6/1/16
1500
.90
7/1/16
2500
1.02
8/1/16
750
1.15
Assume you have sold 2,250 units in 2016.
Given that fact, how much would inventory be valued on the
balance sheet under the following methods and how much Cost of
Goods Sold would be recognized as well?
a. LIFO Method
b. FIFO Method
c. Average...
XYZ is a company that does business in Brisbane. XYZ has 1 million semi-annual coupon bonds...
XYZ is a company that does business in Brisbane. XYZ has 1
million semi-annual coupon bonds with a face value of $1000 each.
At present, its bonds trade at 110% of par. The yield to maturity
of the bonds is quoted at 7.5% per annum. The bonds have a coupon
rate of 8.0% per annum and 15 years to maturity. The company has
150 million ordinary shares outstanding and a beta of 1.30. It
currently trades at $25 per share....
Holden Company issued the following bonds: Issue date – January 1, 2015. Maturity date – January...
Holden Company issued the following bonds: Issue date – January
1, 2015. Maturity date – January 1, 2020. Par value – $100,000.
Market interest rate at time of issue – 10% annually. Stated
interest rate – 9%. Issue price – $96,149. Interest paid – 4.5%
semiannually, first on July 1, 2015.
Assume Dec. 31 is the fiscal year-end.
a. Prepare the journal entry to record the issuance of the bonds
on Jan. 1, 2015.
b. Prepare the journal entries to...
Problem 1: A company is going public at $16 and will use the ticker XYZ. The...
Problem 1: A company is going public at $16 and will use the
ticker XYZ. The underwriters will charge a 7 percent spread. The
company is issuing 20 million shares, and insiders will continue to
hold an additional 40 million shares that will not be part of the
IPO. The company will also pay $1 million of audit fees, $2 million
of legal fees, and $500,000 of printing fees. The stock closes the
first day at $19.
The company in...
A company issues bonds with a par value of $800,000 on their issue date. The bonds...
A company issues bonds with a par value of $800,000 on their
issue date. The bonds mature in 5 years and pay 6% annual interest
in two semiannual payments. On the issue date, the market rate of
interest is 8%. Compute the price of the bonds on their issue date.
$864,858 $800,000 $735,142 $736,464
XYZ Company is a startup company, and it has purchased inventory as follows: DATE QUANTITY PRICE...
XYZ Company is a startup company, and it has purchased inventory
as follows:
DATE
QUANTITY
PRICE
7/1/14
1000
$1.05
8/1/14
500
$1.10
9/1/14
800
$1.00
10/1/14
1500
$.90
11/1/14
2500
$1.02
12/1/14
750
$1.15
Assume you have sold 2,250 units in
2014. Given that fact, how much would inventory be valued on the
balance sheet under the following methods and how much Cost of
Goods Sold would be recognized as well?
LIFO Method
FIFO Method
Average Cost Method
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Kant says that to act morally is to act out of duty. How does this differ...
- Suppose you are trying to determine the capacity (in gallons) of the gas tank needed on...
- List the arithmetic operators used in BASIC and state their priorities of execution in a statement....
- Describe the espoused values of a company you have worked for (or been exposed to -...
- Can you explain to me the differnces in how we paid for the health care (access...
- Discuss proactive and defensive marketing in context to the company position in the hypothetical market structure...
- Write a java code that could be used to show the simulation of a tornado. use...
ADVERTISEMENT