On January 1, 2016, Bradley Recreational Products issued $100,000, 13%, four-yea

Question

On January 1, 2016, Bradley Recreational Products issued $100,000, 13%, four-year bonds. Interest is paid semiannually on June 30 and December 31. The bonds were issued at $97,014 to yield an annual return of 14%. (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.)

Prepare an amortization schedule that determines interest at the effective interest rate.

  

Prepare an amortization schedule by the straight-line method.

     

Prepare the journal entries to record interest expense on June 30, 2018, by each of the two approaches. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record interest expense on June 30, 2018, by the effective interest method.

Record interest expense on June 30, 2018, by the straight-line method.

Assuming the market rate is still 14%, what price would a second investor pay the first investor on June 30, 2018, for $14,000 of the bonds?

Required:

Explanation / Answer

Issue price of the bonds = 6,500 x PVA7%,8 + 100,000 x PV7%, 8th = 6,500 x 5.971 + 100,000 x 0.582

= $ 97,012

1. Amortization Schedule using effective rate;

2. Amortization of discount on bonds payable using straight line method:

3.

Period Interest paid Interest expense Amortization of discount Discount on bonds payable Bonds payable carrying value 2,988 97,012 1. 6,500 6,791 291 2,697 97,303 2. 6,500 6,811 311 2,386 97,614 3 6,500 6,833 333 2,053 97,947 4. 6,500 6,856 356 1,697 98,303 5 6,500 6,881 381 1,316 98,684 6. 6,500 6,908 408 908 99,092 7. 6,500 6,936 436 472 99564 8. 6,500 6,972 472 0 100,000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.