Goal Corporation issued $900,000 face value 7 percent 5-year bonds on 1/1/2021. The bonds pay interest...

Goal Corporation issued $900,000 face value 7 percent 5-year bonds on 1/1/2021. The bonds pay interest semiannually and were sold to yield 8 percent. The bonds were purchased by Shot Company.

a. What is the issuance price of the bond? ___________________

b. Prepare the entry that Goal will make to record the issuance of the bonds.

c. Prepare the entry that Goal will make to record the first interest payment.

d. Prepare the entry that Goal will make to record the second interest payment.

e. Prepare the entry that Shot will make to record the purchase of the bonds.

f. Prepare the entry that Shot will make to record the first interest payment.

g. Record the entry that Shot will make to record the retirement of the bond at its maturity date.

Solutions

Expert Solution

Face Value of bonds = $ 900000

no of years = 5

no of Compounding periods = 5 *2

n = 10

market rate of interest = 8%

for semi Annual period i = 4%

interest payment for semi annual period = 900000 * 7% * ( 6/12)

= $ 31500

Problem 1
total values based on
n =	10
I =	4.0%

Cash Flow	Table Value	amount	Present Value
par Value PVF ( i= 4% , n= 10)	0.67556	900000	608004.00
interest Annuity PVA ( i= 4% , n= 10)	8.1109	31500	255493.35

Issue price of the Bond			863497.35

issue price of the bond = $ 863498 ( approx )

goal Entries

Date	Accounts Name	Debit	Credit
	Bond Issue journal entry
a	Cash	863498
	Discount on bonds ( 900000 – 863498)	36502
	Bonds Payable		900000
	( to record the isssuance of bonds )

b	Interest Expense ( (863498 * 4%)	34540
	Discount on bonds		3040
	Cash ( 900000 * 7% * (6/12))		31500
	( to record the interest expense paid on bonds )

c	Interest Expense ( (863498 + 3040) * 4% )	34662
	Discount on bonds		3162
	Cash ( 900000 * 7% * (6/12))		31500
	( to record the interest expense paid on bonds )

Shot will record Followijng Entries

Date	Accounts Name	Debit	Credit

	Debt investments	900000
	discount on bond investment		36502
	Cash		863498

	Cash	31500
	discount on bond investment	3040
	interest revenue ( 863498 * 4% )		34540
	( to record the first interest payment )

	Cash	900000
	Debt investments		900000
	( to record the maturity of debt investments )

ekkarill92 answered 1 year ago

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