Question

The Bradford Company issued 12% bonds, dated January 1, with a face amount of $86 million on January 1, 2021. The bonds mature on December 31, 2030 (10 years). For bonds of similar risk and maturity, the market yield is 14%. Interest is paid semiannually on June 30 and December 31. (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. Determine the price of the bonds on January 1, 2021.
2. to 4. Prepare the journal entries to record their issuance by The Bradford Company on January 1, 2021, interest on June 30, 2021, and interest on December 31, 2021 (at the effective rate).

Answer 1

Solution 1:

Computation of bond price
Table values are based on:
n=	20
i=	7.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.25842	$86,000,000.00	$22,224,120
Interest (Annuity)	10.59401	$5,160,000.00	$54,665,092
Cash Proceed from sale of bond			$76,889,212

Solution 2 to 4:

Bond Amortization Schedule
Date	Cash Paid	Interest Expense	Discoount Amortized	Unamortized Discount	Carrying Value
1-Jan-21				$9,110,788	$76,889,212
30-Jun-21	$5,160,000	$5,382,245	$222,245	$8,888,543	$77,111,457
31-Dec-21	$5,160,000	$5,397,802	$237,802	$8,650,741	$77,349,259

Journal Entries - Bradford Company
Date	Particulars	Debit	Credit
1-Jan-21	Cash Dr	$76,889,212.00
	Discount on issue of bond Dr	$9,110,788.00
	To Bond Payable		$86,000,000.00
	(To record issue of bond at discount)
30-Jun-21	Interest expense Dr	$5,382,245.00
	To Discount on issue of bond		$222,245.00
	To Cash		$5,160,000.00
	(To record interest expense and discount amortization)
31-Dec-21	Interest expense Dr	$5,397,802.00
	To Discount on issue of bond		$237,802.00
	To Cash		$5,160,000.00
	(To record interest expense and discount amortization)