Question

On January 1, 2020, Archer Company issued ten-year bonds with a face value of $10,000,000 and a stated interest rate of 4%, payable semiannually on June 30 and December 31. The bonds were sold to yield 3%.

           

Instructions

1-Calculate the issue price of the bonds.

2-Record the bond issuance

3-Record the first interest payment and use the straight line method to amortize the discount or premium.

Answer 1

Solution 1:

Computation of bond price
Table values are based on:
n=	20
i=	1.50%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.74247	$10,000,000.00	$7,424,700
Interest (Annuity)	17.16864	$200,000.00	$3,433,728
Price of bonds			$10,858,428

Solution 2:

Journal Entries - Archer Company
Date	Particulars	Debit	Credit
1-Jan-20	Cash Dr	$10,858,428.00
	To Bond Payable		$10,000,000.00
	To Premium on Bond Payable		$858,428.00
	(To record issue of bond at premium)

Solution 3:

Journal Entries - Archer Company
Date	Particulars	Debit	Credit
30-Jun-20	Interest expense Dr	$157,079.00
	Premium on bond payable Dr ($858,428 / 20)	$42,921.00
	To Cash		$200,000.00
	(To record interest expense and premium amortization)