Question

In: Accounting

On January 1, 2020, Archer Company issued ten-year bonds with a face value of $10,000,000 and...

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.

Solutions

Expert Solution

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)

Related Solutions

On January 1, 2020, Drilling Company issued ten-year bonds with a face value of $10,000,000 and...
On January 1, 2020, Drilling 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.
On January 1, 2020, Linen Corp. issued $ 540,000 (face value), 10% annual interest, ten-year bonds...
On January 1, 2020, Linen Corp. issued $ 540,000 (face value), 10% annual interest, ten-year bonds at 97. The bonds are callable at 103. Linen has recorded amortization of the bond premium by the straight-line method. On December 31, 2025, Linen repurchased $ 200,000 of the bonds in the open market at 103. Bond interest expense and premium amortization have not been recorded for 2025. Prepare the journal entries for December 31, 2025.
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, 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 the bonds at the...
On January 1, 2018, Rice Co. issued ten-year bonds with a face value of $5,000,000 and...
On January 1, 2018, Rice Co. issued ten-year bonds with a face value of $5,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:             Instructions Calculate the issue price of the bonds. Record the bond issuance Record the first interest payment
On January 1, 2021, Blossom Co. issued ten-year bonds with a face value of $6,100,000 and...
On January 1, 2021, Blossom Co. issued ten-year bonds with a face value of $6,100,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are: Present value of 1 for 10 periods at 10% 0.386 Present value of 1 for 10 periods at 12% 0.322 Present value of 1 for 20 periods at 5% 0.377 Present value of 1 for 20 periods at 6% 0.312...
Cool Candy Company issued 10 year $10,000,000 face value, 6% convertible bonds at par on January...
Cool Candy Company issued 10 year $10,000,000 face value, 6% convertible bonds at par on January 1, 2018. Each bond has a par value of $1,000 with interest payable on December 31 of each year. The conversion ratio is 5:1 (5 shares of stock for each bond). No bonds have been converted into common stock. Cool’s tax rate is 20%. Net income (after tax) for 2018 was $45,000,000 and the Company has 10,000,000 common shares issued and outstanding during the...
On January 1, 2020, Sro Company issued ten convertible bonds with a par value of $8,000...
On January 1, 2020, Sro Company issued ten convertible bonds with a par value of $8,000 per bond in market for $82,000 in total. Each bond is convertible into 800 ordinary shares of $3 per ordinary share par value. The bonds have a four-year life and a stated interest rate of 8% payable annually. The market interest rate for similar non-convertible bonds on January 1, 2020, is 9%. Q : Compute fair value of liability component and fair value of...
On January 1, 2020, Pharoah Company issued $305,500, 6%, 5-year bonds at face value. Interest is...
On January 1, 2020, Pharoah Company issued $305,500, 6%, 5-year bonds at face value. Interest is payable annually on January 1. Prepare the journal entry to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Jan. 1, 2020 SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare the journal entry to record the accrual of interest on December 31, 2020. (Credit account titles...
Diaz Company issued bonds with a $110,000 face value on January 1, Year 1. The bonds...
Diaz Company issued bonds with a $110,000 face value on January 1, Year 1. The bonds had a 6 percent stated rate of interest and a 10-year term. Interest is paid in cash annually, beginning December 31, Year 1. The bonds were issued at 96. The straight-line method is used for amortization. Required a. Use a financial statements model like the one shown next to demonstrate how (1) the January 1, Year 1, bond issue and (2) the December 31,...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT