Question

Analyzing and Reporting Financial Statement Effects of Bond Transactions On January 1 of the current year, Trueman Corporation issued $400,000 of 20-year, 11% bonds for $369,908, yielding a market (yield) rate of 12%. Interest is payable semiannually on June 30 and December 31.

(a) Confirm the bond issue price.

Round your answers to the nearest whole number.

Present value of principal $ 38889

Present value of interest payments $331019

Selling price of bonds$ 369,908 (

b) Indicate the financial statement effects using the template for (1) bond issuance, (2) semiannual interest payment and discount amortization on June 30, and (3) semiannual interest payment and discount amortization on December 31 of the current year.

Round answers to nearest whole number. Use negative signs with answers, when appropriate.

Balance Sheet Transaction

Cash Asset+ Noncash Assets =Liabilities+Contributed Capital +Earned Capital

(1) 369908 0 369908 0 0

(2) (22000) 0 -------- 0 -----

(3) (22000) 0 ----------- 0 ------

Income Statement

Revenue - Expenses =Net Income

0 0    0

0 ------ -----------

0 -------   ---------

Can you please work on this problem step by step? I included the answers I got so far, and question b those with the ----- I am uncertain how to work arrive at those missing answers, Please show working! Thank you

Answer 1

Answer :-

a)

Principal = $400,000

Stated bond interest rate = 11%

Interest paid = Semiannual

Therefore,

Semianniual interest = $400,000 x 11% x 1/2 = $22,000

Now calculate the present values of principal repayment and interest payments as follows:

Present value of principal repayment = $400,00 x PVIF (6%, 40) = $400,000 x 0.0972222 = $38,888.88

Present value of interest payments = $44,000 x PVIFA (6%, 40) = $22,000 x 15.046297 = $331,018.53

Selling price of bonds = $38,888.88 + $331,018.53 = $369,908 (rounded up)

b) Indicate the financial statement effects using the template for given follows:

1) bond issuance:

  bond issuance = $369,908 ( from the given question)

(2) semiannual interest payable and discount amortization on June 30, :

•   interest payble for semiannual = 400,000 *5.5%

=$22,000

interest payble for semiannual   =$22,000

• discount amortization on June 30, =( $369,908*6%) -($400,000 *5.5%)

= 22,194.48-$22,000

= $194.48

discount amortization on June 30, 2014 = $194.48

(3) semiannual interest payment and discount amortization on December 31, :

•   semiannual interest payment = $400,000*5.5%

=  $22,000

semiannual interest payment  =  $22,000

•   discount amortization on December 31, = ((369,908+194.48)*6%) - (400,000*5.5%)

=$ 22,206.1488 - $ 22,000

= $206.1488.

discount amortization on December 31, 2014  = $206.1488.

c)

Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
1	$3,69,908.00		$                         -		$3,69,908.00		$                                  -
2	$ -22,000.00		$              -194.48		$                   -		$                                  -		$      -22,194.48
3	$ -22,000.00		$              -206.15		$                   -		$                                  -		$       22,206.15

	Income Statement
	Revenue	-	Expenses	=	Net Income
1	0		0		0
2	0		22194.48		-22194.48
3	0		22206.15		-22206.15