January 1, 2018: Nexxon corporation issued 20 year, 9% bonds with a face value of $2,000,0000....

January 1, 2018: Nexxon corporation issued 20 year, 9% bonds with a face value of $2,000,0000. the bonds were sold to yield 10%. Interest is payable semi-annually on january 1 and July 1. Effective rate amortization is to be used.

1. what is the issue price of the bonds?

2. Using EXCEL, prepare an amortization table for the entire bond term.

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

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

6/30/18

12/31/18

Solutions

Expert Solution

1. issue price of bond = pv of all coupon amount + pv of principal

= *900000x17.15909 + 2000000x0.142046 *20000000x4.5% = 900000

= 15443178 + 2840914

= 18284091

Cash A/c	18244091
Discount on Bond	1755909
to Bond Payable		20000000

Interest exp	914250
to Cash		900000
to Discount on Bond		14205

Interest exp	914915
to Cash		900000
to Discount on Bond		14915

Period	Cash Payment	Interest	Net increase	Carrying value
0				18284091
1	900000	914204.55	14204.55	18298295.55
2	900000	914914.78	14914.78	18313210.33
3	900000	915660.52	15660.52	18328870.84
4	900000	916443.54	16443.54	18345314.39
5	900000	917265.72	17265.72	18362580.11
6	900000	918129.01	18129.01	18380709.11
7	900000	919035.46	19035.46	18399744.57
8	900000	919987.23	19987.23	18419731.79
9	900000	920986.59	20986.59	18440718.38
10	900000	922035.92	22035.92	18462754.30
11	900000	923137.72	23137.72	18485892.02
12	900000	924294.60	24294.60	18510186.62
13	900000	925509.33	25509.33	18535695.95
14	900000	926784.80	26784.80	18562480.75
15	900000	928124.04	28124.04	18590604.79
16	900000	929530.24	29530.24	18620135.02
17	900000	931006.75	31006.75	18651141.78
18	900000	932557.09	32557.09	18683698.86
19	900000	934184.94	34184.94	18717883.81
20	900000	935894.19	35894.19	18753778.00
21	900000	937688.90	37688.90	18791466.90
22	900000	939573.34	39573.34	18831040.24
23	900000	941552.01	41552.01	18872592.26
24	900000	943629.61	43629.61	18916221.87
25	900000	945811.09	45811.09	18962032.96
26	900000	948101.65	48101.65	19010134.61
27	900000	950506.73	50506.73	19060641.34
28	900000	953032.07	53032.07	19113673.41
29	900000	955683.67	55683.67	19169357.08
30	900000	958467.85	58467.85	19227824.93
31	900000	961391.25	61391.25	19289216.18
32	900000	964460.81	64460.81	19353676.99
33	900000	967683.85	67683.85	19421360.84
34	900000	971068.04	71068.04	19492428.88
35	900000	974621.44	74621.44	19567050.32
36	900000	978352.52	78352.52	19645402.84
37	900000	982270.14	82270.14	19727672.98
38	900000	986383.65	86383.65	19814056.63
39	900000	990702.83	90702.83	19904759.46
40	900000	995237.97	95237.97	19999997.43

ekkarill92 answered 1 year ago

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