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%.)

Solutions

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

Next > < Previous

Related Solutions

On January 1 of this year, Ikuta Company issued a bond with a face value of...

On January 1 of this year, Ikuta Company issued a bond with a face value of $145,000 and a coupon rate of 7 percent. The bond matures in 3 years and pays interest every December 31. When the bond was issued, the annual market rate of interest was 8 percent. Ikuta uses the effective-interest amortization method. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final...

On 4 February 2010 a company issued a bond with a face value of $500,000 that...

On 4 February 2010 a company issued a bond with a face value of $500,000 that matures exactly 25 years later. The coupon rate is 5% p.a. compounded half-yearly. What is the bond's value on 4 February 2018 assuming the market yield is 8% p.a. compounded half-yearly. a. $230,139.97 b. $670,428.40 c. $408,757.48 d. $361,916.02 e. $363,175.43

On 14 March 2013 a company issued a bond with a face value of $100,000 that...

On 14 March 2013 a company issued a bond with a face value of $100,000 that matures exactly 25 years later. The coupon rate is 6% p.a. compounded half-yearly. What is the bond's value on 14 September 2018 assuming the market yield is 5% p.a. compounded half-yearly. a. $100,000.00 b. $112,365.17 c. $112,174.30 d. $117,017.04 e. $112,551.39

On January 1, 2019 Maxxum PLC issued 12% bonds with a face value of £800,000 and...

On January 1, 2019 Maxxum PLC issued 12% bonds with a face value of £800,000 and offering bondholders a 10% yield. The bonds are dated January 1, 2019 and mature January 1, 2024 with interest payable December 31 each year. (100 POINTS) Instructions Prepare the journal entry at the date of the bond issuance. Prepare a schedule of interest expense and bond amortization for 2019-2021 Prepare the journal entry to record the interest payment and amortization for 2019 Prepare the journal...

Bats Corporation issued $800,000 of 12% face value bonds for $851,705.70. The bonds were dated and...

Bats Corporation issued $800,000 of 12% face value bonds for $851,705.70. The bonds were dated and issued on April 1, 2016, are due March 31, 2020, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare any adjusting entries for the...

A bond is issued at a face value of $1,000 with a stated rate of interest...

A bond is issued at a face value of $1,000 with a stated rate of interest of 8% paid annually. The market rate of interest is 9% and the bond matures in 10 years. What amount of principal will be paid to the bondholder at the end of year 10?

Gupta Corporation issued four-year, 12% bonds with a total face value of $800,000 on January 1,...

Gupta Corporation issued four-year, 12% bonds with a total face value of $800,000 on January 1, 2018. Interest is paid semi-annually on June 30 and December 31. The market rate of interest on this date was 8%. Gupta uses the effective interest rate method. Required: Using Excel, determine the proceeds of the bond sale on 1/1/18. Using the present value of a dollar table (found in Appendix E of your text), what factor would you use to calculate the present...

On January 1, 2019, Arc Company issued a $10,000 face value bond that sold for 92. The...

On January 1, 2019, Arc Company issued a $10,000 face value bond that sold for 92. The bond had an eight-year term and with a coupon (stated) rate of 4% annual interest. The company uses the straight-line method of amortization. 1. The carrying value of the bond liability on January 1, 2019, would be... 2. The amount of interest expense reported on the 2019 income statement would be... 3. Interest expense reported on the income statement over the life of the bond would a. increase...

2 years ago, a company issued a 10-year, 9% coupon bond with a face value of...

2 years ago, a company issued a 10-year, 9% coupon bond with a face value of $1000. The bond makes quarterly coupon payments. Today, the bond yields APR of 10% compounded semi-annually. What is the price of the bond today? I asked this question earlier but the answer I got is wrong. I am trying to figure out how to do this question correctly. Thank you!

a company issued 1000, 4 years annual bond having face value of 10000 each with a...

a company issued 1000, 4 years annual bond having face value of 10000 each with a coupon rate of 14% if the market rate is 12% calculate amortization to be charged in year 3, ? and bond value as reported in balance sheet of company at the end of year 2

Subjects