Question
In: Accounting
Answer two of the following three Problems Problem 1 Company: XYZ Company Date of bonds: &nbs
Answer two of the following three Problems
Problem 1
Company: XYZ Company
Date of bonds: January 1, 2019
Term: 4 years
Face (Par) Value: $1,000
Stated interest rate: 12%
Effective interest rate: 10%
Interest payment dates on January 1 and July 1
- Compute the market price of the bonds and journalize the issuance of the bonds.
- Prepare a schedule to amortize the premium or discount using the effective interest method of amortization for the first year and journalize the entries to record the interest payment on July 1, 2019 and January 1 2020.
- Interest expense for the year ended December 31, 2019 is $______________.
Solutions
Expert Solution
Answer-1:
Market price of bond = $1,065
Explanation:
| Table value are based on: | |||||
| n = | 8 | ||||
| i = | 6% | ||||
| Cash Flow | Table value | × | Amount | = | Present value |
| Par (Maturity) value | 0.677 | × | $ 1,000 | = | $ 677 |
| Interest (annuity) | 6.46321 | × | $ 60 | = | $ 388 |
| Price of bonds | $ 1,065 |
Answer-2:
| Date | Account Name | Debit | Credit |
| Jan.01, 2019 | Cash | $ 1,065 | |
| Premium on bond payable | $ 65 | ||
| Bonds payable | $ 1,000 | ||
| (to record issue of bond) |
Answer-3:
|
Payment No. |
Interest Payment (Stated Rate x Face Value) |
Interest Expense (Effective Rate x Carrying Value) |
Amortization of Premium on Bonds Payable Account |
Credit Balance in Premium on Bonds Payable Account |
Credit Balance in Bonds Payable account |
Book Value or Carrying Value of the Bonds |
| Jan.01, 2019 | $ 65 | $ 1,000 | $ 1,065 | |||
| Jul.01, 2019 | $ 60 | $ 53 | $ 7 | 58 | 1,000 | 1,058 |
| Jan.01, 2020 | 60 | 53 | 7 | 51 | 1,000 | 1,051 |
| Jul.01, 2020 | 60 | 53 | 7 | 43 | 1,000 | 1,043 |
| Jan.01, 2021 | 60 | 52 | 8 | 35 | 1,000 | 1,035 |
| Jul.01, 2021 | 60 | 52 | 8 | 27 | 1,000 | 1,027 |
| Jan.01, 2022 | 60 | 51 | 9 | 19 | 1,000 | 1,019 |
| Jul.01, 2022 | 60 | 51 | 9 | 10 | 1,000 | 1,010 |
| Jan.01, 2023 | 60 | 50 | 10 | 0 | 1,000 | 1,000 |
Answer-4:
| Date | Account Name | Debit | Credit |
| Jul.01, 2019 | Interest expense | $ 53 | |
| Premium on bond payable | 7 | ||
| Cash | $ 60 | ||
| Jal.01, 2020 | Interest expense | 53 | |
| Premium on bond payable | 7 | ||
| Cash | 60 |
ekkarill92 answered 1 year agoRelated Solutions
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