Question

In: Accounting

I. Company A issues bonds with a par value of $870,000 on their stated issue date....

I. Company A issues bonds with a par value of $870,000 on their stated issue date. The bonds mature in five years and pay 8% annual interest in semiannual payments.

Assume: On the issue date, the annual market rate for the bonds is 6%.

  1. What is the amount of each semiannual interest payment for these bonds? _________________
  2. Compute the price of the bonds as of their issue date using either the factors tables or excel formula. _________________
  3. Prepare the journal entry to record the bonds' issuance:
  4. Prepare the amortization schedule using the effective interest method of either the Discount or Premium using excel, use the following title and headings, and print it out on one page and include in your packet:

    Company A

    Amortization Schedule (6% Market Rate)

    Periods

    Interest Payments

    Bond Interest Expense

    Discount Amortization

    Unamortized Discount

    Carrying Value

Solutions

Expert Solution

Solution 1:

Amount of each semiannual interest payment for these bonds = $870,000 *8%*6/12 = $34,800

Solution 2:

Computation of bond price
Table values are based on:
n= 10
i= 3%
Cash flow Table Value Amount Present Value
Par (Maturity) Value 0.744094 $870,000.00 $647,362
Interest (Annuity) 8.530203 $34,800.00 $296,851
Price of bonds $944,213

Solution 3:

Journal Entries
Event Particulars Debit Credit
1 Cash Dr $944,213.00
       To Bond Payable $870,000.00
       To Premium on issue of bond $74,213.00
(To record issue of bond at Premium)

Solution 4:

Bond Amortization Schedule
Period Interest payments Bond Interest expense Premium Amortization Unamortized Premium Carrying Value
0 $74,213 $944,213
1 $34,800 $28,326 $6,474 $67,739 $937,739
2 $34,800 $28,132 $6,668 $61,072 $931,072
3 $34,800 $27,932 $6,868 $54,204 $924,204
4 $34,800 $27,726 $7,074 $47,130 $917,130
5 $34,800 $27,514 $7,286 $39,844 $909,844
6 $34,800 $27,295 $7,505 $32,339 $902,339
7 $34,800 $27,070 $7,730 $24,609 $894,609
8 $34,800 $26,838 $7,962 $16,647 $886,647
9 $34,800 $26,599 $8,201 $8,447 $878,447
10 $34,800 $26,353 $8,447 $0 $870,000

Related Solutions

I. Company A issues bonds with a par value of $870,000 on their stated issue date....
I. Company A issues bonds with a par value of $870,000 on their stated issue date. The bonds mature in five years and pay 8% annual interest in semiannual payments. Assume: On the issue date, the annual market rate for the bonds is 10%. What is the amount of each semiannual interest payment for these bonds? _________________ Compute the price of the bonds as of their issue date using either the factor tables or excel formula.    _________________ Prepare the journal...
Bringham Company issues bonds with a par value of $630,000 on their stated issue date. The...
Bringham Company issues bonds with a par value of $630,000 on their stated issue date. The bonds mature in 7 years and pay 8% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 10%. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.) 1. What is the amount of each semiannual interest payment for these bonds? 2. How many semiannual interest payments will be made...
A company issues bonds with a par value of $800,000 on their issue date. The bonds...
A company issues bonds with a par value of $800,000 on their issue date. The bonds mature in 5 years and pay 6% annual interest in two semiannual payments. On the issue date, the market rate of interest is 8%. Compute the price of the bonds on their issue date. $864,858 $800,000 $735,142 $736,464
Item 3 Citywide Company issues bonds with a par value of $72,000 on their stated issue...
Item 3 Citywide Company issues bonds with a par value of $72,000 on their stated issue date. The bonds mature in ten years and pay 11% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 10%. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.) 1. What is the amount of each semiannual interest payment for these bonds? 2. How many semiannual interest payments will...
Quatro Co. issues bonds dated January 1, 2017, with a par value of $870,000. The bonds’...
Quatro Co. issues bonds dated January 1, 2017, with a par value of $870,000. The bonds’ annual contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 8%, and the bonds are sold for $892,789. 1. What is the amount of the premium on these bonds at issuance? 2. How much total bond interest expense will be recognized over...
A company has an issue of convertible bonds with a $1,000 par value. The bonds have...
A company has an issue of convertible bonds with a $1,000 par value. The bonds have a 10% coupon rate, have a 10-year maturity, and are convertible into 100 shared of common stock. The yield to maturity on bonds of similar risk is 11% and the market price of the firm's common stock is currently $9.00. Based on this information: a) What is the conversation value of this bond if it is selling at $970? b) What is it's pure...
A company issues bonds with a par value of $10,000,000 on January 1, 2013. The bonds...
A company issues bonds with a par value of $10,000,000 on January 1, 2013. The bonds have an annual coupon rate of 5%, pay interest semi-annually, and will mature in 5 years. If the market rate of interest on the bonds is 6% per year, then what is the interest expense that the company will report for the year ending December 31, 2015? [Note: the company uses the effective interest method of amortization.]
the company has an outstanding issue of bonds with a par value of $1,000 and paying...
the company has an outstanding issue of bonds with a par value of $1,000 and paying a 3.80 percent p.a. coupon rate with semi‑annual payments. The bonds were issued 30 years ago and have 15 years to maturity. What should be the current price per bond, assuming a 4.28 percent p.a. yield on comparable securities? please show all calculations on excel
Tano Company issues bonds with a par value of $100,000 on January 1, 2019. The bonds’...
Tano Company issues bonds with a par value of $100,000 on January 1, 2019. The bonds’ annual contract rate is 8%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 10%, and the bonds are sold for $94,923. 1. What is the amount of the discount on these bonds at issuance? 2. How much total bond interest expense will be recognized over...
Bringham Company issues bonds with a par value of $640,000. The bonds mature in 6 years...
Bringham Company issues bonds with a par value of $640,000. The bonds mature in 6 years and pay 7% annual interest in semiannual payments. The annual market rate for the bonds is 10%. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.) 1. Compute the price of the bonds as of their issue date. 2. Prepare the journal entry to record the bonds’ issuance.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT