Ng Company (whose CEO is Sidhuey) issued a bond with face value of $800,000 that will...

Ng Company (whose CEO is Sidhuey) issued a bond with face value of $800,000 that will be matured in 8 years at 5% coupon rate. (You may use PV and PV of an Ordinary Annuity tables in the text book.) Required: 1. Prepare journal entries for the issue of the bond when market rate is 6%. 2. Prepare journal entries for the issue of the bond when market rate is 4% 3. Using the effective interest method, prepare journal entries for the interest payment and bond amortization for the end of year 1 and 2. (Market rate is 6%.)

Expert Solution

Face Value of Bonds = $800,000

Annual Coupon Rate = 5.00%
Annual Coupon = 5.00% * $800,000
Annual Coupon = $40,000

Time to Maturity = 8 years

Answer 1.

Annual Interest Rate = 6.00%

Issue Value of Bonds = $40,000 * PVA of $1 (6.00%, 8) + $800,000 * PV of $1 (6.00%, 8)
Issue Value of Bonds = $40,000 * 6.2098 + $800,000 * 0.6274
Issue Value of Bonds = $750,312

Answer 2.

Annual Interest Rate = 4.00%

Issue Value of Bonds = $40,000 * PVA of $1 (4.00%, 8) + $800,000 * PV of $1 (4.00%, 8)
Issue Value of Bonds = $40,000 * 6.7327 + $800,000 * 0.7307
Issue Value of Bonds = $853,868

Answer 3.

ekkarill92 answered 1 year ago

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