On March 31, 2020, Adtech Inc. issued $200,000, 9%,10-year bonds. The bonds pay interest semi-annually, on...

On March 31, 2020, Adtech Inc. issued $200,000, 9%,10-year bonds. The bonds pay interest semi-annually, on September 30 and March 31. The first interest payment is on September 30, 2020. The bonds are issued at a price of 114¹/₄ (i.e., $228,500). The issuance price implies an effective interest rate of 7%. Bond issue costs are $10,000, which are amortized using the straight-line method. Adtech’s fiscal year-end is on December 31.

1.Prepare all necessary journal entries in relation to these bonds between March 30, 2020 and April 1, 2021.

2. What is the amount of the liability that Adtech has to the bondholders on September 30, 2021, after the interest payment on that date?

Expert Solution

1.

2. Closing value of 9% Bond on September 30, 2021 = $222,054

Bond Amortization table
Period	Opening Balance	Interest @7%	Payment @9%	Closing Balance
1-Apr-20	$ 228,500	$ -	$ -	$ 228,500
30-Sep-20	$ 228,500	$ 15,995	$ 18,000	$ 226,495
31-Mar-21	$ 226,495	$ 15,855	$ 18,000	$ 224,350
30-Sep-21	$ 224,350	$ 15,704	$ 18,000	$ 222,054

ekkarill92 answered 1 year ago

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