Question

On January 1, 2018, NFB Visual Aids issued $780,000 of its 20-year, 8% bonds. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. NFB Visual Aids records interest expense at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2018, the fair value of the bonds was $650,000 as determined by their market value in the over-the-counter market. General (risk-free) interest rates did not change during 2021. (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, 2018. 1-b to 4. Prepare the necessary Journal entries.

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
		Amount	PVF (n=40,i=5%)	PV of Amount
Interest	$780,000*8%*6/12	$     31,200	17.15909	$        535,364
Principal		$   780,000	0.14205	$        110,799
Price of Bond				$        646,163
Date	Account	Debit	Credit
Jan 1 2018	Cash	$   646,163
	Discount on Bond Payable	$   133,837
	Bond Payable		$             780,000
	(being bond issued on discount)
Jun 30 2018	Interest Expense ($646,163*5%)	$     32,308
	Discount on Bond Payable		$                 1,108
	Cash ($780,000*4%)		$               31,200
	(being interest for the period recorded)
Dec 31 2018	Interest Expense ($646,163+1108)*5%	$     32,364
	Discount on Bond Payable		$                 1,164
	Cash ($780,000*4%)		$               31,200
	(being interest for the period recorded)
Dec 31 2018	Unrealized Holding Loss - OCI	$        1,566
	Fair Value adjustment		$                 1,566
	(adjustment to fair value)
	Fair Value	$   650,000
	Book Value as on Dec 31 2018	$   648,434
	$646,163+$1,108+$1,164
	Difference	$        1,566