Question
In: Accounting
On January 1, 2018, Instaform, Inc., issued 10% bonds with a face amount of $58 million,...
On January 1, 2018, Instaform, Inc., issued 10% bonds with a
face amount of $58 million, dated January 1. The bonds mature in
2037 (20 years). The market yield for bonds of similar risk and
maturity is 12%. Interest is paid semiannually.
Required:
1-a. Determine the price of the bonds at January 1,
2018.
1-b. Prepare the journal entry to record their
issuance by Instaform.
2-a. Assume the market rate was 9%. Determine the
price of the bonds at January 1, 2018.
2-b. Assume the market rate was 9%. Prepare the
journal entry to record their issuance by Instaform.
3. Assume Broadcourt Electronics purchased the
entire issue in a private placement of the bonds. Using the data in
requirement 2, prepare the journal entry to record the purchase by
Broadcourt.
Solutions
Expert Solution
| 1-a. Determine the price of the bonds at January 1, 2018. | ||
| Semiannual cash interest | 10% x 58,000,000 x 6/12 | |
| 2900000 | ||
| Present value of interest | ||
| payments @ 6% | 15.0463*2900000 | 43634270 |
| Present value of $58,000,000 | 0.09722 x 58,000,000 |
5638760 |
| Price of bonds | 49273030 | |
| General Journal | Debit | Credit |
| Cash | 49273030 | |
| Discount on Bonds payable | 8,726,970 | |
| Bonds payable | 58,000,000 | |
| 2 | ||
| Semiannual cash interest: | 10% x 58,000,000 x 6/12 | |
| 2900000 | ||
| Present value of interest | ||
| payments @ 4.5% | 18.40158*2900000 | 53364582 |
| Present value of $58,000,000 | 0.17193*58000000 | 9971940 |
| Price of bonds | 63336522 | |
| General Journal | Debit | Credit |
| Cash | 63336522 | |
| Primium on Bonds payable | 5,336,522 | |
| Bonds payable | 58,000,000 | |
| 3 | ||
| Semiannual cash interest: | 10% x 58,000,000 x 6/12 | |
| 2900000 | ||
| Present value of interest | ||
| payments @ 4.5% | 18.40158*2900000 | 53364582 |
| Present value of $58,000,000 | 0.17193*58000000 | 9971940 |
| Price of bonds | 63336522 | |
| General Journal | Debit | Credit |
| Investment in bonds | 58,000,000 | |
| Primium on Bonds payable | 5,336,522 | |
| Bonds payable | 63336522 | |
ekkarill92 answered 9 months agoRelated Solutions
On January 1, 2018, Instaform, Inc., issued 10% bonds with a face amount of $49 million,...
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