On January 1, 2018, Bradley Recreational Products issued $150,000, 12%, four-yea

Question

On January 1, 2018, Bradley Recreational Products issued $150,000, 12%, four-year bonds. Interest is paid semiannually on June 30 and December 31. The bonds were issued at $141,044 to yield an annual return of 14%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare an amortization schedule that determines interest at the effective interest rate. 2. Prepare an amortization schedule by the straight-line method. 3. Prepare the journal entries to record interest expense on June 30, 2020, by each of the two approaches. 5. Assuming the market rate is still 14%, what price would a second investor pay the first investor on June 30, 2020, for $21,000 of the bonds?

Explanation / Answer

Requirement 1

Requirement 2

Discount on issue of bond $8,956.

Requirement 3

Requirement 5

Sr. no. date Opening balance interest expense payment accrued interest Closing balance 1 30/06/18 $1,41,044 $9,873 $9,000 $873 $1,41,917 2 31/12/18 $1,41,917 $9,934 $9,000 $934 $1,42,851 3 30/06/19 $1,42,851 $10,000 $9,000 $1,000 $1,43,851 4 31/12/19 $1,43,851 $10,070 $9,000 $1,070 $1,44,921 5 30/06/20 $1,44,921 $10,144 $9,000 $1,144 $1,46,065 6 31/12/20 $1,46,065 $10,225 $9,000 $1,225 $1,47,290 7 30/06/21 $1,47,290 $10,310 $9,000 $1,310 $1,48,600 8 31/12/21 $1,48,600 $10,400 $1,59,000 -$1,48,600 $0

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