In: Accounting
On February 1, 2018, Cromley Motor Products issued 6% bonds,
dated February 1, with a face amount of $55 million. The bonds
mature on January 31, 2022 (4 years). The market yield for bonds of
similar risk and maturity was 8%. Interest is paid semiannually on
July 31 and January 31. Barnwell Industries acquired $55,000 of the
bonds as a long-term investment. The fiscal years of both firms end
December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1
and PVAD of $1) (Use appropriate factor(s) from the tables
provided.)
Required:
1. Determine the price of the bonds issued on February 1,
2018.
2-a. Prepare amortization schedules that indicate
Cromley’s effective interest expense for each interest period
during the term to maturity.
2-b. Prepare amortization schedules that indicate
Barnwell’s effective interest revenue for each interest period
during the term to maturity.
3. Prepare the journal entries to record the
issuance of the bonds by Cromley and Barnwell’s investment on
February 1, 2018.
4. Prepare the journal entries by both firms to
record all subsequent events related to the bonds through January
31, 2020.