Question

 

Question Determining the present value of bonds payable and journalizing

using the effective-interest amortization method

Brad Nelson, Inc. issued $600,000 of 7%, six-year bonds payable on January 1, 2018.

The market interest rate at the date of issuance was 6%, and the bonds pay interest

semiannually.

Learning Objectives 2, 3, 4

3. June 30, 2018, Interest

Expense $25,200

Learning Objectives 2, 3, 4

June 30, 2018, Interest Expense

$37,750

C H A P T E R 1 2

Requirements

1. How much cash did the company receive upon issuance of the bonds payable?

(Round to the nearest dollar.)

 

Answer 1

 

Step 1: Definition of present value

The present value means the value of bonds from a specific date in the future. The present value tells us the value of the investment at the current date. In this question the present value of the bonds is calculated

Step 2: The amount received on the issue is

 

The present value means the value of bonds from a specific date in the future.