On January 1, 2019, ABC Company issued bonds with a face value of $1,000 and a...

On January 1, 2019, ABC Company issued bonds with a face value of $1,000 and a coupon rate of 8 percent. The bonds mature in 2 years and pay interest on June 30 and December 31 each year. The market rate is 12% annually. The present value of $1 table and the present value of annuity of $1 table are provided on the next page. Round your final answers to the nearest whole dollar.

(1) What is the issue price of the bonds?

(2) Were the bonds issued at a discount, at par, or at a premium?

(3) Suppose ABC uses straight-line amortization method, what is the interest expense to be recorded on June 30, 2019?

Solutions

Expert Solution

Ans:

Face Value of Bond: $1,000

Interest Rate : 8%

Periodic Interest Rate : 8%/2 = 4%

Periodic Interest : 4%*1,000 = $40

Life 2 Years

Number of periods : 2*2 = 4

Market rate : 12%

Periodic Market rate (6 months) : 6%

Annuity Factor @6% for 4 Periods : 3.46511 (Using factor table)

PV Factor @6% for 4 Periods : 0.79209 (Using factor table)

Value of Bond : Annuity Factor* Periodic Interest + PV Factor* Face Value of Bond

= 3.46511 * $40 + 0.79209*$1,000 = $931

Price of the Bond : $931

Since Market price is lower than Face value, bonds are issued at Discount.

Using Straight Line method Discount of $69 ($1,000 - $931) to be amortised equally over 4 Periods.

Discount to be amortised on June 30 : $69/4 = $17.25 or $17

Interest Expesne to be recorded on June 30 : Periodic Interest + Discount amortised

= $40 + $17 = $57

For any query please ask in comment box, we are happy to help you. Also please don't forget to provide your valuable feedback. Thanks!

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Question: Bonds Payable On January 1, 2019, ABC Company issued bonds with a face value of...

Question: Bonds Payable On January 1, 2019, ABC Company issued bonds with a face value of $1,000 and a coupon rate of 8 percent. The bonds mature in 2 years and pay interest on June 30 and December 31 each year. The market rate is 12% annually. The present value of $1 table and the present value of annuity of $1 table are provided on the next page.Round your final answers to the nearest whole dollar. (1) What is the...

a. The ABC company issued bonds with a face value of $1,000 each. The bonds carry...

a. The ABC company issued bonds with a face value of $1,000 each. The bonds carry an 8 percent coupon, pay interest semi-annually, and mature in 7 years. What is the current price of these bonds if the yield to maturity is 12 percent? b. If the market price of the bond is $1,050, do you buy or sell the bond? Why? c. What type of bond is this? Why?

On January 1, 2024, Fabrikam Labs issued 1,000 bonds, each with a face value of $1,000,...

On January 1, 2024, Fabrikam Labs issued 1,000 bonds, each with a face value of $1,000, for 102.7323. The stated interest is 3.8%, and the market rate at the time the bonds were issued was 3.2%. The bonds are due on January 1, 2029 (5 year term) with interest payments due annually every January 1st. The company received cash from the sale of the bonds. Using the effective-interest method calculate and record the December 31, 2025 journal entry for the...

On January 1, 2019, Garner issued 10-year, $200,000 face value, 6% bonds at par. Each $1,000...

On January 1, 2019, Garner issued 10-year, $200,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Garner $2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock) outstanding throughout its life. None of the bonds have been converted as of the end of 2020. (Ignore all tax effects.) Requirement 1: Accounting Prepare the journal entry Garner would have made on January 1, 2019, to record...

On January 1, 2019, Ridge Company issued $10,000,000 face value bonds for 10 years at 12%....

On January 1, 2019, Ridge Company issued $10,000,000 face value bonds for 10 years at 12%. The bonds are issued at 96, and dated January 1. Interest is paid annually on January 1. The end of Ridge’s fiscal year is December 31. Required: 1. Prepare the necessary journal entries for the year 2019. 2. Show the balance sheet presentation on December 31, 2019. 3. Prepare the necessary journal entries for the year 2020. 4. What is the carrying value of...

On January 1, 2019, Ridge Company issued $10,000,000 face value bonds for 10 years at 12%....

On January 1, 2019 Maxxum PLC issued 12% bonds with a face value of £800,000 and...

On January 1, 2019 Maxxum PLC issued 12% bonds with a face value of £800,000 and offering bondholders a 10% yield. The bonds are dated January 1, 2019 and mature January 1, 2024 with interest payable December 31 each year. (100 POINTS) Instructions Prepare the journal entry at the date of the bond issuance. Prepare a schedule of interest expense and bond amortization for 2019-2021 Prepare the journal entry to record the interest payment and amortization for 2019 Prepare the journal...

Ajax Corporation issued 1,500 bonds each with face value of $1,000 on January 1, 2025. The...

Ajax Corporation issued 1,500 bonds each with face value of $1,000 on January 1, 2025. The bonds have semi-annual interest payments at 4% per annum due on December 31st and June 30th. The bonds mature on December 31, 2029 and were issued to yield 5% per annum. What amount would Ajax record for interest expense when making the first interest payment on June 30, 2025? Question 7 options: $69,208 $30,000 $31,347 $35,859

XYZ Corporation issued bonds on January 1, 2020 with a face value of $1,000, 10% stated...

XYZ Corporation issued bonds on January 1, 2020 with a face value of $1,000, 10% stated interest rate, with semi-annual payments, and a maturity date of December 31, 2024 (4 years). The market interest rate is 8%. Required: (Answers may be rounded to the nearest dollar) 1. Compute the market price of the bonds and the journal entry to record issuance of the bonds on January 1, 2020. 2. Record the journal entry for the first semi-annual interest payment on...

On January 1, 2017, Surreal Manufacturing issued 660 bonds, each with a face value of $1,000,...

On January 1, 2017, Surreal Manufacturing issued 660 bonds, each with a face value of $1,000, a stated interest rate of 3.70 percent paid annually on December 31, and a maturity date of December 31, 2019. On the issue date, the market interest rate was 4.00 percent, so the total proceeds from the bond issue were $654,508. Surreal uses the effective-interest bond amortization method. Required: 1. Prepare a bond amortization schedule. (Round your final answers to the nearest whole dollar.)...

Subjects