Determine the bond selling price, prepare an amortization schedule using the \"E

Question

Determine the bond selling price, prepare an amortization schedule using the "Effective Interest Amortization Method" (as discussed in the chapter appendices), and prepare all relevant journal entries. Bee Gee Movie, Inc issued $2 million of 5-year bonds on January 1, 2016 to finance upcoming motion picture production The bonds paid stated (contract) interest at 7% with annual payments each December 31 it. The bonds were sold to yield an effective (market) interest rate of 6% at the time of the sale. Using whole dollars, determine the selling price of these bonds, using present value techniques in the appendix. Indicate whether a Premium or a Discount results and show all computations. Selling price of bonds (with computations and time-line shown below):

Explanation / Answer

(a) Selling Price

(b) Amortization Schedule

(c) Journal Entries

2016

2017

Bond Amount 2000000 No of Years 5 Interest Rate 7% Coupon Interest 2000000*7% 140000 Market Interest 6% Bond Price 2084247.28 Bond Price B0=(Coupon Interest*(PVIFA 6%,5))+(Maturity Value*(PVIF 6%,5)) Bond Price B0= (140000*(PVIFA 6%,5))+(2000000*(PVIF 6%,5)) Bond Price B0=(140000* 4.212363)+(2000000*0.747258) Bond Price B0= 2084247.28

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