Dee Brewery issued 35,000,000 of bonds on 7/1/00. The bonds have a term of 10 ye

Question

Dee Brewery issued 35,000,000 of bonds on 7/1/00. The bonds have a term of 10 years with an 8% interest rate. Interest is payable annually. The market rate of interest on similar length of federal bonds is 10%.

In order to complete their expansion project, the Brewery issued another 2,000,000 of bonds on 4/1/2000. These bonds have a term of 8 years with an interest rate of 9%. Interest on these bonds is paybable semi annually and the market rate is 8%.

Prepare journal entries related to bonds and bond interest.

Explanation / Answer

Present value of 8% bonds issued on 7/01/00 = Annual Interest*PVIFA(10%,10) + Face value/(1.10^10)

= (35000000*8%)*6.1446 + 35000000/2.5937

= 17204880 + 13494236

= $30699116

..

Therefore, discount on issue of bonds = 35000000

Present value of 8% bonds issued on 7/01/00 = Annual Interest*PVIFA(10%,10) + Face value/(1.10^10)

= (35000000*8%)*6.1446 + 35000000/2.5937

= 17204880 + 13494236

= $30699116

..

Therefore, discount on issue of bonds = 35000000

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