Question

When Patey Pontoons issued 10% bonds on January 1, 2018, with a face amount of $880,000, the market yield for bonds of similar risk and maturity was 11%. The bonds mature December 31, 2021 (4 years). Interest is paid semiannually on June 30 and December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Determine the price of the bonds at January 1, 2018.
2. Prepare the journal entry to record their issuance by Patey on January 1, 2018.
3. Prepare an amortization schedule that determines interest at the effective rate each period.
4. Prepare the journal entry to record interest on June 30, 2018.
5. What is the amount related to the bonds that Patey will report in its balance sheet at December 31, 2018?
6. What is the amount related to the bonds that Patey will report in its income statement for the year ended December 31, 2018? (Ignore income taxes.)
7. Prepare the appropriate journal entries at maturity on December 31, 2021.

Req 1

Req 2

Req 3

Req 4

Req 5 and 6

Req 7

Determine the price of the bonds at January 1, 2018. (Round final answers to the nearest whole dollar.)

8

	Table values are based on: n = 8 i = 5.5% Cash Flow Amount Present Value Interest Principal Price of bonds

Prepare the journal entry to record their issuance by Patey on January 1, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round final answers to the nearest whole dollar.)

Journal entry worksheet

Record the issuance of the bonds on January 1, 2018.

Note: Enter debits before credits.

	Date General Journal Debit Credit January 01, 2018

Prepare an amortization schedule that determines interest at the effective rate each period. (Round final answers to the nearest whole dollar.)

	Semiannual Interest Period-End Cash Interest Bond Interest Expense Discount Amortization Carrying Value 01/01/2018 06/30/2018 12/31/2018 06/30/2019 12/31/2019 06/30/2020 12/31/2020 06/30/2021 12/31/2021 Total

Prepare the journal entry to record interest on June 30, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round final answers to the nearest whole dollar.)

Journal entry worksheet

Record the interest expense on June 30, 2018.

Note: Enter debits before credits.

	Date General Journal Debit Credit June 30, 2018

What is the amount(s) related to the bonds that Patey will report in its balance sheet at December 31, 2018 and income statement for the year ended December 31, 2018? (Ignore income taxes.) (Round your intermediate calculation to nearest whole dollar.)

	5. December 31, 2018 book value 6. Interest expense for 2018

Prepare the appropriate journal entries at maturity on December 31, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round final answers to the nearest whole dollar.)

Journal entry worksheet

Record the interest expense on December 31, 2021.

Note: Enter debits before credits.

	Date General Journal Debit Credit December 31, 2021

Record the retirement of the bond at maturity on December 31, 2021.

Note: Enter debits before credits.

	Date General Journal Debit Credit December 31, 2021

Answer 1