Question
In: Accounting
On January 1, 2021, Instaform, Inc., issued 10% bonds with a face amount of $49 million,...
On January 1, 2021, Instaform, Inc., issued 10% bonds with a face amount of $49 million, dated January 1. The bonds mature in 2040 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Required: 1-a. Determine the price of the bonds at January 1, 2021.
1-b. Prepare the journal entry to record their issuance by Instaform.
2-a. Assume the market rate was 9%. Determine the price of the bonds at January 1, 2021.
2-b. Assume the market rate was 9%. Prepare the journal entry to record their issuance by Instaform.
3. Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt.
Solutions
Expert Solution
Solution 1a:
| Computation of bond price | |||
| Table values are based on: | |||
| n= | 40 | ||
| i= | 6.00% | ||
| Cash flow | Table Value | Amount | Present Value |
| Par (Maturity) Value | 0.09722 | $49,000,000.00 | $4,763,780 |
| Interest (Annuity) | 15.04630 | $2,450,000.00 | $36,863,435 |
| Price of bonds | $41,627,215 |
Solution 1b:
| Journal Entries - Instaform Inc. | |||
| Event | Particulars | Debit | Credit |
| 1-Jan-21 | Cash Dr | $41,627,215.00 | |
| Discount on issue of bond Dr | $7,372,785.00 | ||
| To Bond Payable | $49,000,000.00 | ||
| (To record issue of bond at discount) |
Solution 2a:
| Computation of bond price | |||
| Table values are based on: | |||
| n= | 40 | ||
| i= | 4.50% | ||
| Cash flow | Table Value | Amount | Present Value |
| Par (Maturity) Value | 0.17193 | $49,000,000.00 | $8,424,570 |
| Interest (Annuity) | 18.40158 | $2,450,000.00 | $45,083,871 |
| Price of bonds | $53,508,441 |
Solution 2b:
| Journal Entries - Instaform Inc. | |||
| Date | Particulars | Debit | Credit |
| 1-Jan-21 | Cash Dr | $53,508,441.00 | |
| To Bond Payable | $49,000,000.00 | ||
| To Premium on Bond Payable | $4,508,441.00 | ||
| (To record issue of bond at premium) |
Solution 3:
| Journal Entries - Broadcourt Electronics | |||
| Date | Particulars | Debit | Credit |
| 1-Jan-21 | Investment in Bond Dr | $49,000,000.00 | |
| Premium on bond investment Dr | $4,508,441.00 | ||
| To Cash | $53,508,441.00 | ||
| (To record investment in bond) |
ekkarill92 answered 1 year agoRelated Solutions
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