Question
In: Accounting
Enviro Company issues 10%, 10-year bonds with a par value of $250,000 and semiannual interest payments....
Enviro Company issues 10%, 10-year bonds with a par value of $250,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 12%, which implies a selling price of 88 1/2.
1. Prepare the journal entries for the issuance of the bonds. Assume the bonds are issued for cash on January 1, 2017.
2. Confirm that the bonds’ selling price is approximately correct. Use present value Table B.1 and Table B.3 in Appendix B. (Round all table values to 4 decimal places, and use the rounded table values in calculations.)
Solutions
Expert Solution
| Date | Accounting titles & explanations | Debit | Credit | ||||
| 1/1/2017 | cash | (250000*88.5%) | 221250 | ||||
| discount on bonds | 28,750 | ||||||
| bonds payable | 250,000 | ||||||
|
|
|||||||
| Principal | 250,000 | ||||||
| interest | 12500 | ||||||
| Market interest rate | 6% | ||||||
| periods to maturity | 20 | ||||||
| issue price | 221,324 | ||||||
| Calculation of bond issue price | |||||||
| Where | |||||||
| i= | 6.00% | ||||||
| t= | 20 | ||||||
| principal | * | PV of $1 at 6% for 20 yrs = | |||||
| 250,000 | * | 0.3118 | = | 77,950 | |||
| interest | * | PV of ordinary annuity at 3%= | |||||
| 12500 | * | 11.4699 | = | 143,374 | |||
| bond issue price | 221,324 | ||||||
ekkarill92 answered 1 year agoRelated Solutions
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