Question

In: Accounting

Determining the present value of bonds payable and journalizing

 

Question Determining the present value of bonds payable and journalizing

using the effective-interest amortization method

Relaxation, Inc. is authorized to issue 7%, 10-year bonds payable. On January 1, 2018,

when the market interest rate is 12%, the company issues $300,000 of the bonds. The

bonds pay interest semiannually.

Requirements

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

(Round to the nearest dollar.)

2. Prepare an amortization table for the bond using the effective-interest method,

through the first two interest payments. (Round to the nearest dollar.)

3. Journalize the issuance of the bonds on January 1, 2018, and the first and second

payments of the semiannual interest amount and amortization of the bonds on

June 30, 2018, and December 31, 2018. Explanations are not required.

Solutions

Expert Solution

 

Step 1: Definition of bonds

The bonds are a long-term liability that the company issues to fulfill the need for a large amount of money.

Step 2: Calculation of cash received upon the issuance

To calculate the cash acquired upon the issuance of the bonds, all the present value of the principal and the current value of the interest are calculated.

  

Hence, the cash received on the issue of the bonds is $213,974.

Step 3: Preparation of amortization schedule

Date

Interest Expense

Cash Paid

Amortization Amount

Carrying Amount

01-01-2018

 

 

 

$213,974

30-06-2018

$12,838

$10,500

$2,338

$216,912

31-12-2018

$12,979

$10,500

$2,479

$218,791

 

Step 4: Necessary journal entries

Date

Particulars

Debit

Credit

January 1, 2018

Cash

$213,974

 

 

Discount on Bonds Payable

$86,026

 

 

Bonds Payable

 

$300,000

 

(Being entry for the issue of the bonds)

 

 

 

 

 

 

June 30, 2018

Interest Expense

$12,838

 

 

Discount on Bonds Payable

 

$2,338

 

Cash

 

$10,500

 

(Being entry for the payment of interest)

 

 

 

 

 

 

December 31, 2018

Interest Expense

$12,979

 

 

Discount on Bonds Payable

 

$2,479

 

Cash

 

$10,500

 

(Being entry for the payment of interest)

 

 

 

 


 

The present value of the principal is $93,540.

Related Solutions

Determining the present value of bonds payable Interest rates determine the present value of future amounts
  Question: Determining the present value of bonds payable Interest rates determine the present value of future amounts. (Round to the nearest dollar.) Requirements 1. Determine the present value of 10-year bonds payable with face value of $86,000 and stated interest rate of 14%, paid semiannually. The market rate of interest is 14% at issuance. 2. Same bonds payable as in Requirement 1, but the market interest rate is 16%. 3. Same bonds payable as in Requirement 1, but the...
1. Determine the present value of five​-year bonds payable with face value of $91,000 and stated...
1. Determine the present value of five​-year bonds payable with face value of $91,000 and stated interest rate of 14​%, paid semiannually. The market rate of interest is 14​% at issuance. 2. Same bonds payable as in Requirement​ 1, but the market interest rate is 16​%. 3. Same bonds payable as in Requirement​ 1, but the market interest rate is 10​%.
Present Value of Bonds Payable; Premium Moss Co. issued $180,000 of five-year, 11% bonds, with interest...
Present Value of Bonds Payable; Premium Moss Co. issued $180,000 of five-year, 11% bonds, with interest payable semiannually, at a market (effective) interest rate of 10%. Determine the present value of the bonds payable, using the present value tables in Exhibit 5 and Exhibit 7. Round to the nearest dollar. $
Present Value of Bonds Payable; Premium Mason Co. issued $260,000 of four-year, 13% bonds with interest...
Present Value of Bonds Payable; Premium Mason Co. issued $260,000 of four-year, 13% bonds with interest payable semiannually, at a market (effective) interest rate of 11%. Determine the present value of the bonds payable, using the present value tables in Exhibit 4 and Exhibit 5. Round to the nearest dollar. $
Present Value of Bonds Payable; Premium Moss Co. issued $610,000 of five-year, 13% bonds, with interest...
Present Value of Bonds Payable; Premium Moss Co. issued $610,000 of five-year, 13% bonds, with interest payable semiannually, at a market (effective) interest rate of 11%. Determine the present value of the bonds payable, using the present value tables in Exhibit 5 and Exhibit 7. Round to the nearest dollar. $
Present Value of Bonds Payable; Premium Moss Co. issued $100,000 of five-year, 11% bonds with interest...
Present Value of Bonds Payable; Premium Moss Co. issued $100,000 of five-year, 11% bonds with interest payable semiannually, at a market (effective) interest rate of 8%. Determine the present value of the bonds payable, using the present value tables in Exhibit 8 and Exhibit 10. Note: Round to the nearest dollar. $
Present value of bonds payable; discount Pinder Co. produces and sells high-quality video equipment. To finance...
Present value of bonds payable; discount Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder issued $25,000,000 of three-year, 8% bonds, with interest payable semiannually, at a market (effective) interest rate of 11%. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below. Open spreadsheet Determine the present value of the bonds payable. Round your answer to the nearest dollar....
Present value of bonds payable; discount Pinder Co. produces and sells high-quality video equipment. To finance...
Present value of bonds payable; discount Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder issued $22,000,000 of three-year, 8% bonds, with interest payable semiannually, at a market (effective) interest rate of 10%. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below. Open spreadsheet Determine the present value of the bonds payable. Round your answer to the nearest dollar
Present value of bonds payable; discount Pinder Co. produces and sells high-quality video equipment. To finance...
Present value of bonds payable; discount Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder issued $25,000,000 of three-year, 10% bonds, with interest payable semiannually, at a market (effective) interest rate of 11%. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below. Determine the present value of the bonds payable. Round your answer to the nearest dollar. $   Present...
Present Value of Bonds Payable; Discount Pinder Co. produces and sells high-quality video equipment. To finance...
Present Value of Bonds Payable; Discount Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder issued $25,000,000 of five-year, 7% bonds, with interest payable semiannually, at a market (effective) interest rate of 9%. Determine the present value of the bonds payable, using the present value tables in Exhibit 5 and Exhibit 7. Round to the nearest dollar. $ Present Value of Bonds Payable; Premium Moss Co. issued $100,000 of five-year, 12% bonds, with interest payable semiannually,...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT