Question

Marin Ltd. sold $6,120,000 of 12% bonds, which were dated March 1, 2020, on June 1, 2020. The bonds paid interest on September 1 and March 1 of each year. The bonds' maturity date was March 1, 2030, and the bonds were issued to yield 14%. Marin's fiscal year-end was February 28, and the company followed IFRS. On June 1, 2021, Marin bought back $2,120,000 worth of bonds for $2,020,000 plus accrued interest.

1- Using 1. a financial calculator, or 2. Excel function PV, calculate the issue price of the bonds and prepare the entry for the issuance of the bonds. (Hint: Use the account Interest Payable in your entry). (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) There are supposed to be 3 entries for this part.

2- Prepare the journal entry for the scheduled interest payment on September 1, 2020. (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) There are supposed to be 4 entries for this part.

3- Prepare any year-end entry required at February 28, 2021. (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) There are supposed to be 3 entries for this part.

4- Prepare the entry required for the redemption of face value $2,120,000 of the bonds on June 1, 2021. (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) There are supposed to be 4 entries for this part.

Answer 1

Working as follows:

PVAD(7%, 20)	10.59401
PVD(7%, 20)	0.25842
Interest payable semiannually [$6120000 × 12% × 6/12]	$367,200
Maturity Value of bonds payable		$6,120,000
Present value of $6120000 due in 20 periods at 7%.	$1,581,530
[$6120000 × 0.25842]
Present value of interest payable semiannuallly	$3,890,120
[$367200 × 10.59401]
Proceeds from sale of bonds		$5,471,650
Discount on bond payable		$648,350

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Prepare the schedule of bond discount amortization as follows:

Date	Cash	Interest Expense @7%	Bond Discount	Carrying value
	[A]	[B =D*7%]	[C = B-A]	[D = carr. Val. + C]
Mar. 01, 2020				$5,471,650
Sep. 01. 2020	$367,200	$383,016	$15,816	$5,487,466
Mar. 01, 2021	$367,200	$384,123	$16,923	$5,504,388
Sep. 01. 2021	$367,200	$385,307	$18,107	$5,522,495
Mar. 01, 2022	$367,200	$386,575	$19,375	$5,541,870
Sep. 01. 2022	$367,200	$387,931	$20,731	$5,562,601
Mar. 01, 2023	$367,200	$389,382	$22,182	$5,584,783
Sep. 01. 2023	$367,200	$390,935	$23,735	$5,608,518
Mar. 01, 2024	$367,200	$392,596	$25,396	$5,633,914
Sep. 01. 2024	$367,200	$394,374	$27,174	$5,661,088
Mar. 01, 2025	$367,200	$396,276	$29,076	$5,690,164
Sep. 01. 2025	$367,200	$398,311	$31,111	$5,721,276
Mar. 01, 2026	$367,200	$400,489	$33,289	$5,754,565
Sep. 01. 2026	$367,200	$402,820	$35,620	$5,790,184
Mar. 01, 2027	$367,200	$405,313	$38,113	$5,828,297
Sep. 01. 2027	$367,200	$407,981	$40,781	$5,869,078
Mar. 01, 2028	$367,200	$410,835	$43,635	$5,912,714
Sep. 01. 2028	$367,200	$413,890	$46,690	$5,959,403
Mar. 01, 2029	$367,200	$417,158	$49,958	$6,009,362
Sep. 01. 2029	$367,200	$420,655	$53,455	$6,062,817
Mar. 01, 2030	$367,200	$424,397	$57,197	$6,120,014

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1.

calculate the issue price of the bonds and prepare the entry for the issuance of the bonds.

Issue price of the Bond = $5,471,650

Entry as follows:

Date	Account Titles	Debit	Credit
Mar. 01, 2020	Cash	$5,471,650
	Discount on bond payable	$648,350
	Bonds payable		$6,120,000

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2- Prepare the journal entry for the scheduled interest payment on September 1, 2020

Date	Account Titles	Debit	Credit
Sep. 01, 2020	Interest Expense	$383,016
	Discount on bond payable		$15,816
	Cash		$367,200

______________________________________________________________________________

3- Prepare any year-end entry required at February 28, 2021.

Date	Account Titles	Debit	Credit
Feb. 28, 2020	Interest Expense	$384,123
	Discount on bond payable		$16,923
	Cash		$367,200