Question

Assuming Kristi corporation issued a 10%, $1M bond due in 5 years. The bond sold on January 1, 2018, to yield 8%. The company pays interest on June 30th and December 31st

1. Determine the issue price of the bond.

2. Record the necessary journal entries for 2018 assuming the company's fiscal year end is 12/31.

3. Record the necessary journal entries for 2018 assuming the company's fiscal year end is 10/31.

Answer 1

Computation of Issue Price of Bond, n=5 year, market interest rate=8%
PV of Semi Annual interest (1000000*5%*8.1109)	405,545.00
PV of Face Value of Bond (1000000*0.6756)	675,600.00
Issue Price of Bond	1,081,145.00

Journal Entry- issuance of Bond- Kristi Corporation-
Date	Accoutn Tittle	Debit	Credit
1/1/2018	Cash	$1,081,145
	Premium on Issue of Bond		$81,145
	Bond Payable		$1,000,000

Journal Entry- Part-2-
S. No.	Accoutn Tittle	Debit	Credit
6/30/2018	Interest Expense (1081145*4%)	$43,246
	Amortisation of Premium	$6,754
	Cash (1000000*5%)		$50,000
31/12/2018	Interest Expense (1081145-6754)*4%)	$42,976
	Amortisation of Premium	$7,024
	Cash (1000000*5%)		$50,000

Journal Entry- Part-3
S. No.	Accoutn Tittle	Debit	Credit
6/30/2018	Interest Expense (1081145*4%)	$43,246
	Amortisation of Premium	$6,754
	Cash (1000000*5%)		$50,000
31/10/2018	Interest Expense (1081145-6754)*4%*4/6	$28,650
	Amortisation of Premium	$4,683
	Interest Payable (1000000*5%*4/6)		$33,333