4 000 oints value 10.00 points On January 1, 2016, ithaca Corp. purchases Cortla

Question

4 000 oints value 10.00 points On January 1, 2016, ithaca Corp. purchases Cortland Inc. bonds that have a face value of $300,000. The Cortland bonds have a stated interest rate of 7%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 y dates is as follows (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.): years. For bonds of similar risk and maturity, the market yield on particular January 1,2016 June 30, 2016 December 31, 2016 8.0% 9.0% 10.0% Required: 1. Calculate the price Ithaca would have paid for the Cortland bonds on January 1, 2016 (ignoring brokerage fees). 2. Prepare all appropriate journal entries related to the bond investment during 2016, assuming Ithaca accounts for the bonds as a held-to-maturity investment. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) view transaction list view general journal Journal Entry Worksheet 1230 Record the investment in bonds with a face value of $300,000, a stated interest rate of 7% and a market yield of 8%. The bonds pay interest semi-annually. General Journal Debit Credit January 01, 2016

Explanation / Answer

1. interest = 300,000 * 7% *1/2 = $10,500 = PMT

Bond value = PMT * ( PVOA factor n= 20 semiannual period i= 4% ) + FV *( PV factor n = 20 i = 4% )

= 13.59033 * 10,500 + 300,000 * .45639 = $279,615

2. Investment in bonds $300,000

Cash $279,615

Discount on bond $20,385

3. Investment in bonds $279,615

Cash $279,615

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