J-BOND CO issued 700,000 of 8 year bonds at a stated rate of 4% when the market
ID: 2514499 • Letter: J
Question
J-BOND CO issued 700,000 of 8 year bonds at a stated rate of 4% when the market rate of interest was 5%. The bonds were issued on July 1 and paid interest semi-annually.
The issue price of the bonds is
The bonds were issued at (premium, discount, par)
The entry to record interest expense for period 7 is
( you may use clear abbreviations for the account names)
If the company were to repurchase the bonds at 97 at the end of the 10th period, the journal entry would be
The entry to retire the bonds at maturity is
The issue price of the bonds is
The bonds were issued at (premium, discount, par)
The entry to record interest expense for period 7 is
( you may use clear abbreviations for the account names)
If the company were to repurchase the bonds at 97 at the end of the 10th period, the journal entry would be
The entry to retire the bonds at maturity is
Explanation / Answer
Solution:
1. Issue price of Bond
Face Value of Bond = 700000
Interest Rate 4%, 2% semi Annual
Market Rate of Interest = 5%, 2.5% semi annual
Period = 8years, 16 half year period
Issue Price of The Bond = Present value of Interest Expenses + Present Value of Maturity Value
= 14000 * (cumulative PV factor at 2.5% for 16 periods) + 700000 * (PV factor at 2.5% at 16th period)
= 14000*13.055003 + 700000*0.673625 = 654307.49
2. Bonds were issued at premium, discount or par?:
The bonds were issued at a discount as the market rate of Interest is higher than Coupon rate of Bond.
3. The entry to record interest expenses for period 7:
The amount of interest and discount amortized is shown in below table:
4. If the Company to repurchase the bonds at 97 at the end of 10th period:
5. The entry to retire the Bond at Maturity:
Particulars Debit Credit Interest Expense Dr 16734.19 To Cash A/c 14000.00 To Discount on issue of Bond 2734.19Related Questions
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