(2 Tincup Corp. issued 100 five-year bonds on July 1, 2015. The interest payment
ID: 2512760 • Letter: #
Question
(2 Tincup Corp. issued 100 five-year bonds on July 1, 2015. The interest payments are due semiannually (Jan 1 and July 1) at an annual rate of 8 percent. The effective interest rate on the bonds is 6 percent. The face value of each bond is S1,000. Prepare the journal entry that would be recorded on July 1, 2015, when the bonds are issued. a. b. Prepare the journal entry that would be recorded on December 31, 2015. c. Compute the balance sheet value of the bond liability of December 3, 2015 d. What is the present value of the bond's remaining cash flows as of December 31, 2015 using the effective interest rate?Explanation / Answer
Working Note : Computation of Issue Price and Premium on Bond Payable Part-(a&b)Journal Entry Face Value (FV) $1,000 S. No. Date Account Tittle Debit Credit Coupon Rate = 8%/2 4.00% a. 01.07.2015 Cash $108,530.20 PMT $40 Premium on Bonds $8,530.20 Nper = 5 x2 10 Bonds Payable $100,000 Rate = 6%/2 3.00% Current price of the stock PV(3%,10,-40,-1000) $1,085.30 b. 31.12.2015 Bond Interest Expense $3,146.98 Bonds Issued 100 Premium on Bonds Payable =$8,530.2/10) $853.02 Total Bonds Value = $1085.3 x 100 bonds $108,530.20 Bond Interest Payable ($100,000 x 4%) $4,000 Total Face Value($1000 x 100) $100,000 Premium on Bonds $8,530.20 Part-C : Computation of Balansheet Value of the Bond Liability Current Liabilities Bond interest payable $4,000 Long-term Liabilities Bonds payable $100,000 Add: Premium on bonds payable($8,530.2 -$853.02) $7,677.18 Total $107,677.18
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