Question

In: Accounting

Larry Company issued 10 year, 6% bonds with a face value of $1,000,000. The bonds were...

Larry Company issued 10 year, 6% bonds with a face value of $1,000,000. The bonds were sold to yield 7%. Interest is payable semi-annually on January 1 and July 1. Effective rate amoritization is to be used.

1. What is the issue price of the bonds?

2. Prepare an amortization table for the entire bond term. Table should be properly labeled. Amounts should be rounded to the nearest dollar.

3. Record the bond issuance on 1/1/18

Accounts	Debit	Credit

4. Assume the company prepares financial statements semi-annually on June 30 and December 31. Prepare the appopriate adjusting entries for June 30, 2018 and December 31, 2018 for interest and for amortization of the discount or premium.

6/30/2018

Accounts	Debit	Credit

12/31/18

Accounts	Debit	Credit

5. What accounts related to this bond would be shown on the 12/31/18 balance sheet? Show in the proper secitons

Liabilities

Current Liabilities

Long Term Liabilities

6. On January 1, 2023, Excel Corporation paid the interest payment due on that date and then called all the bonds at 101.5. What is the amount of gain or loss on this call?

$______________ Gain or Loss (choose one) Show computation below.

Prepare all neccessary journal entires for the call date.

January 1, 2023

Accounts	Debit	Credit

Expert Solution

Answer 1.

Face Value = $1,000,000

Annual Coupon Rate = 6%
Semiannual Coupon Rate = 3.00%
Semiannual Coupon = 3.00%*$1,000,000
Semiannual Coupon = $30,000

Annual Yield = 7.0%
Semiannual Yield = 3.50%

Time to Maturity = 10 years
Semiannual Period to Maturity = 20

Proceed from Issue = $30,000 * PVIFA(3.50%, 20) + $1,000,000 * PVIF(3.50%, 20)
Proceed from Issue = $30,000 * (1 - (1/1.035)^20) / 0.035 + $1,000,000 / 1.035^20
Proceed from Issue = $928,938

So, issue price of bond is $928,938

Answer 2:

ekkarill92 answered 1 year ago

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