Question

II.     On November 1, 20x1, Bush Company issued 10% bonds with a face amount of $20 million. The bonds mature in 10 years. For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on April 30 and October 31. Bush is a calendar-year corporation.

           

Required:

(1.)Determine the price of the bonds at November 1, 20x1.

(2.)Prepare the journal entry to record the bond issuance by Bush on November 1, 20x1.

(3.)Prepare the journal entries (using the effective interest method):

a.    December 31, 20x1

b.    April 30, 20x2

c.    October 31, 20x2

           *Assume no reversing entry is recorded on January 1, 20x2.

(4.) What would be the journal entry if all bonds are retired at 103 on May 1, 20x3 right after the third payment.

Please all 4 questions, I think I have the price right but would like to make sure my answers are correct before turning it in, thank you

Answer 1

Answer 1	Face Value[a]	$20,000,000
	Annual coupon rate[b]	10.00%
	Semi annual coupon rate[c]	5.00%
	Semi annual coupon[a*c]	$1,000,000
	Time to Maturity (In years)	10
	Semiannual period to Maturity	20
	Annual Market Rate	12.00%
	Semi annual coupon rate[c]	6.00%
	Proceeds from Issue	$17,706,016	$1,000,000*PVIFA(6%,20)+$20,000,000*PVIF(6%,20)
			($1,000,000*(1-(1/1.06)^20)/.06)+($20,000,000/1.06^20)
Answer 2	Date	General Journal	Debit	Credit
	Nov 01 , 20x1	Cash	$17,706,016
		Discount on Bonds	$2,293,984
		To Bonds Payable		$20,000,000
Answer 3	Date	General Journal	Debit	Credit
	Dec 31 , 20x1	Interest Expense ($17,706,016*6%*2/6)	$354,120
		To Discount on Bonds		$20,787
		To Interest Payable ($1,000,000*2/6)		$333,333
	Apr 30 , 20x2	Interest Expense ($17,706,016*6%*2/6)	$708,241
		Interest Payable	$333,333
		To Discount on Bonds		$41,574
		To Cash		$1,000,000
	Oct 31, 20x2	Interest Expense ($17,706,016*6%*6/6)	$1,062,361
		To Discount on Bonds		$62,361
		To Cash		$1,000,000
Answer 4	Date	General Journal	Debit	Credit
	Dec 31 , 20x2	Interest Expense ($17,706,016*6%*2/6)	$354,120
		To Discount on Bonds		$20,787
		To Interest Payable ($1,000,000*2/6)		$333,333
	Apr 30 , 20x3	Interest Expense ($17,706,016*6%*2/6)	$708,241
		Interest Payable	$333,333
		To Discount on Bonds		$41,574
		To Cash		$1,000,000
	May 01, 20x3	Bond Payable	$20,000,000
		Loss on Redemption of Bonds	$2,706,901
		To Discount On Bond		$2,106,901	($2,293,984-$41,574-$62,361-$20,787-$41,574)
		To Cash		$20,600,000	($20,00,000*1.03)