Question

Venezuela Inc. issued $2,000,000 5-year bonds at 9%. These bonds were issued on January 1, 2017 and pay interest on January 1 and July 1. The YTM of the bond is 11%, i.e. the effective interest rate for the company is 11%.

a. Calculate the value of the bonds and prepare the journal entry to record the issuance of the bonds on January 1, 2017.

b. Prepare a bond amortization schedule up to and including January 1, 2022. c. Assume that on July 1, 2020, the company retires half of the bonds by calling them back at 102%. Prepare the journal entry to record this retirement.

please solve ASAP

Answer 1

Answer A

Coupon rate per period (9%/2)	4.50%
Face value of bond	$    2,000,000
Market rate per period (11%/2)	5.50%
Interest paid (2000000*4.5%)	$          90,000
Interest paid on	Semi annually
Number of period (5*2)	10

Market rate per period used for PV factor.
Market rate per period		5.50%
Period	PV factor	PVA factor
1	0.94787	0.94787
2	0.89845	1.84632
3	0.85161	2.69793
4	0.80722	3.50515
5	0.76513	4.27028
6	0.72525	4.99553
7	0.68744	5.68297
8	0.65160	6.33457
9	0.61763	6.95220
10	0.58543	7.53763

	Amount	Multiply: PV factor	Present value
Face value	$    2,000,000	0.58543	$    1,170,860
Interest paid	$          90,000	7.53763	$        678,387
Issue price of bonds (Total of above)			$    1,849,247
Less: face value of Bond			$    2,000,000
Discount on Bond payable			$        150,753

Answer B

Answer C

Journal entries
Date	Account title	Debit	Credit
Jan 1, 2017	Cash	1,849,247
	Discount on Bond payable	150,753
	Bond payable		2,000,000
	(To record issued of bond payable at Discount.)
July 1, 2017	Interest expense	101,709
	Discount on Bond payable		11,709
	Cash		90,000
	(To record interest expense and amortization of bond discount.)
July 1, 2017	Bond payable	1,000,000
	Loss on retirement of bond payable	89,522
	Discount on Bond payable		69,522
	Cash		1,020,000
	(To record early retirement of bond payable.)

Face value of bond (2000000/2)	1,000,000
Less: Unamortized bond discount (139044/2)	69,522
Carrying value of bond	930,478
Less: Redemption value of bond (1000000*102%)	1,020,000
Gain (Loss) on retirement of bond	(89,522)