On March 1, 2014, Squeeks Corporation issued a $1 million face-value bond with 11% face interest...

On March 1, 2014, Squeeks Corporation issued a $1 million face-value bond with 11% face interest rate and a maturity of fifteen years. The semi- annual interest payments are made on March 1 and September 1. The bond was issued at such a price as to yield 9.6%.

a. What was the issue price of the bond?

b. Prepare the journal entry to record the sale of the bond on March 1,

2014.

Expert Solution

Part-a) Payments are made semi-annually = 1000,000 * 11% * 1/2 = 55,000
n = 15 years * 2 = 30
i = 9.6%/ 2 = 4.8%
Issue price = 55,000 (P/A, 4.8%, 30) + 1000,000 (P/F, 4.8%, 30)
Issue price = 55,000 * 15.7292 + 1,000,000 * 0.2450
Issue price = 865,107.11 + 244997.43
Issue price = 1110104.54

Part-b)

Date   Particulars   Debit   Credit
Mar-01   Cash   1,110,104.54
   Bond Payable       1,000,000.00
   Unamortized Bond Premium       110,104.54

Rahul Sunny answered 3 years ago

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