On April 1, 2011, Warm Universe issued 8% bonds dated April 1, 2011 with a face
ID: 2503400 • Letter: O
Question
On April 1, 2011, Warm Universe issued 8% bonds dated April 1, 2011 with a face amount of $10,000,000. The bonds mature in 2030 (20 years). Interest is paid semi-annually on September 30 and March 31. For bonds of similar risk and maturity the market yield is different, at 9%. Warm uses the effective interest rate method of amortization.
You may wish to prepare a partial amortization table. (Highly recommended!)
Required:
1. Determine the proceeds of the bonds at April 1, 2011.
2. Prepare journal entry to record the bonds issuance by Warm Universe on April 1, 2011.
3. Prepare the journal entry to record interest on September 30, 2011 for Warm.
4. Prepare the journal entry at Warm
Explanation / Answer
1. Determine the proceeds of the bonds at April 1, 2011.
the proceeds of the bonds at April 1, 2011 = PV(4.5%,40,400000,10000000)
the proceeds of the bonds at April 1, 2011 = $ 9,079,920.78
2. Prepare journal entry to record the bonds issuance by Warm Universe on April 1, 2011.
3. Prepare the journal entry to record interest on September 30, 2011 for Warm.
4. Prepare the journal entry at Warm
Cash A/c$9,079,920.78
Discount on Issue of Bond A/c $920,079.22
Bond A/c
10,000,000.00
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