Question

In: Accounting

On January 1, Year1, Boston Group issued $500,000 par value, 12% three-year bonds when the market...

On January 1, Year1, Boston Group issued $500,000 par value, 12% three-year bonds when the market rate of interest was 8%. Interest is payable semiannually on December 31. The following present value information is available:

	4%	8%
Present Value of $1 (n=5)	0.7903	0.6302
Present value of an ordinary annuity (n=5)	5.2421	4.6229
Present Value of $1 (n=3)	0.8890	0.7938
Present value of an ordinary annuity (n=5)	2.7751	2.5771

What amount is the value of net bonds payable at the end of year 1?

Expert Solution

Issue Price of the Bond

Face Value = $500,000

Semi-annual Coupon Amount = $30,000 [$500,000 x 12.00% x ½]

Semi-annual Yield to Maturity = 4.00% [8.00% x ½]

Maturity Period = 6 Years [3 Years x 2]

Therefore, the Issue Price of the Bond = Present Value of the Coupon Payments + Present Value of the face Value

= $30,000[PVIFA 4.00%, 6 Years] + $500,000[PVIF 4.00%, 6 Years]

= [$30,000 x 5.2421] + [$500,000 x 0.7903]

= $157,263 + $395,150

= $552,413

The Issue Price of the Bond will be $552,413.

Bond amortization schedule for the first two semi-annual periods

Date	Cash paid at 6.00% on $500,000	Interest Exp at 4.00% on Previous period carrying value	Change in Carrying Value	Carrying Value

Jan 1, Year 1	-	-	-	552,413
June 30, Year 1	30,000	22,097	7,903	544,510
Dec 31, Year 1	30,000	21,780	8,220	536,290

Therefore, the value of net bonds payable at the end of year 1 will be $536,290 (Aprrox)

ekkarill92 answered 1 year ago

On January 1, Montgomery Inc. issued $200,000 of 12% 5-year bonds when the market interest rate...

On January 1, Montgomery Inc. issued $200,000 of 12% 5-year bonds when the market interest rate was 10%. The bonds pay interest semiannually on June 30th and December 31. Proceeds received were $215,443. These bonds were issued at a DISCOUNT/PREMIUM (circle one) because the Contract Rate is EQUAL TO/ GREATER THAN/ LESS THAN (circle one) the Market Rate Record the following transactions: Bond issue on January 1 Paid semiannual interest on June 30 Amortized the bond premium or discount

On July 1, Year1, Wellco issued bonds with a face value of $200,000. The bonds have...

On July 1, Year1, Wellco issued bonds with a face value of $200,000. The bonds have a stated annual interest rate of 4% and the interest is paid semi-annually on June 30 and December 31. (You do not need to know the maturity date of these bonds to do the problem.) Wellco received $160,800 for the bonds when the market rate of interest was 6%. At December 31, Year1, the fair market value of the debt was $164,000. Show your...

Stanford issues bonds dated January 1, 2019, with a par value of $500,000. The bonds' annual...

Stanford issues bonds dated January 1, 2019, with a par value of $500,000. 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 12%, and the bonds are sold for $463,140. 1. What is the amount of the discount on these bonds at issuance? 2. How much total bond interest expense will be recognized over the...

A company issued 10%, 10-year bonds with a par value of $1,000,000 on January 1, 2008,...

A company issued 10%, 10-year bonds with a par value of $1,000,000 on January 1, 2008, at a selling price of $885,295, to yield the buyers a 12% return. The company uses the effective interest amortization method. Interest is paid semiannually each June 30 and December 31. (1) Prepare an amortization table for all the payment periods using the format shown below: (2) Answer the following questions based on your work: (a) Which direction is carrying value going? (b) Describe...

January 1, 2019 ABEF company issued 5-year bonds with a par value of $1,000,000 and a...

January 1, 2019 ABEF company issued 5-year bonds with a par value of $1,000,000 and a 6% annual stated rate of interest. The issue price of the bond was $950,000. Interest payments are made semiannually. Any premiums or discounts should amortized using the straight line method. (Remember when amortizing pay attention to how many periods) Prepare Journal Entries for the following A) Record the issuance of the bonds B) Record interest expense at June 30, 2019 C) Record interest expense...

12. On January 1, a company issues bonds dated January 1 with a par value of...

12. On January 1, a company issues bonds dated January 1 with a par value of $740,000. The bonds mature in 3 years. The contract rate is 10%, and interest is paid semiannually on June 30 and December 31. The bonds are sold for $719,000. The journal entry to record the first interest payment using straight-line amortization is: 16. On January 1, a company issues bonds dated January 1 with a par value of $330,000. The bonds mature in 5...

On January 1, 2017, Boston Enterprises issues bonds that have a $2,200,000 par value, mature in...

On January 1, 2017, Boston Enterprises issues bonds that have a $2,200,000 par value, mature in 20 years, and pay 9% interest semiannually on June 30 and December 31. The bonds are sold at par. 1. How much interest will Boston pay (in cash) to the bondholders every six months? 2. Prepare journal entries to record (a) the issuance of bonds on January 1, 2017; (b) the first interest payment on June 30, 2017; and (c) the second interest...

On January 1, Boston Enterprises issues bonds that have a $1,800,000 par value, mature in 20...

On January 1, Boston Enterprises issues bonds that have a $1,800,000 par value, mature in 20 years, and pay 8% interest semiannually on June 30 and December 31. The bonds are sold at par. 1a. How much interest will Boston pay (in cash) to the bondholders every six months? 1b. Prepare journal entries to record (a) the issuance of bonds on January 1, (b) the first interest payment on June 30, and (c) the second interest payment on December 31....

On January 1, 2017, Boston Enterprises issues bonds that have a $3,400,000 par value, mature in...

On January 1, 2017, Boston Enterprises issues bonds that have a $3,400,000 par value, mature in 20 years, and pay 9% interest semiannually on June 30 and December 31. The bonds are sold at par. 1. How much interest will Boston pay (in cash) to the bondholders every six months? 2. Prepare journal entries to record (a) the issuance of bonds on January 1, 2017; (b) the first interest payment on June 30, 2017; and (c) the second interest payment...

On January 1, Boston Enterprises issues bonds that have a $1,300,000 par value, mature in 20...

On January 1, Boston Enterprises issues bonds that have a $1,300,000 par value, mature in 20 years, and pay 7% interest semiannually on June 30 and December 31. The bonds are sold at par. 1a. How much interest will Boston pay (in cash) to the bondholders every six months? 1b. Prepare journal entries to record (a) the issuance of bonds on January 1, (b) the first interest payment on June 30, and (c) the second interest payment on December 31....