Question

ANSWER ASAP THANKS!

On January 1 20X1, Jude Company issues bonds with a face value of $2,000,000 in exchange for cash. On that date the market rate is 12%. The bond has a stated rate of 15% and matures in five years. Interest is paid every four months. Which of the following is part of the journal entry that Jude Company records at the date of the bond issuance.

		DEBIT to Bond Payable for $2,000,000
		DEBIT to Cash for $2,000,000
		CREDIT to Premium on Bond Payable for $215,500
		CREDIT to Cash for $2,215,500
		DEBIT to Cash for $2,215,500
		CREDIT to Premium on Bond Payable for $221,800

Answer 1

interest Amount for 4 months period = Face Value * Stated Rate of interest

= 2000000 * 15% * ( 4/12)

= $ 100000

no of interest payments in a year = 3

no of compounding periods = term period of bonds * no of interest payments in a year

= 5 * 3

= 15

market rate of interest = 12%

for four months (I) = 4%

issue price of the bond ( involves approximation )

total values based on
n =	15
I = market Rate of interest	4%
Cash Flow	Table Value	amount	Present Value                  ( table Value * Amount )
par Value                            PVF ( i= 4% , n= 15 )	0.55526	$2,000,000	1110520
interest Annuity                PVA ( i= 4% , n= 15)	11.11839	$100,000	1111839.00
issue Price of the bond			2222359.00

premium on bonds = 2222359 - 2000000

= 222359

Which is near to the options F

So journal entry is

Date	Accounts Name	Debit	Credit
1	Bond Issue
year 1
1/1/2020	Cash	2221800
	Premium on bonds		221800
	Bonds Payable		2000000

Credit to premium on bonds $ 221800 is correct option