E10-14 Recording and Reporting a Bond Issued at a Premium (without Premium Accou
ID: 2531343 • Letter: E
Question
E10-14 Recording and Reporting a Bond Issued at a Premium (without Premium Account) LO10-5, Supplement A Park Corporation is planning to issue bonds with a face value of $2,001,000 and a coupon rate of 10 percent. The bonds mature in 15 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and does not use a premium account. Assume an annual market rate of interest of 8.5 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.) Required: 1. Prepare the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the issuances of the bonds. Note: Enter debits before credits. Debit Credit Date January 01 General Journal Cash Bonds payableExplanation / Answer
CALCULATION OF PRESENT VALUE OF THE BOND IF THE INTEREST PAID SEMI ANNUALLY Step 1 : Calculation of Annual Coupon Payments Par value of the bond issued is = $20,01,000 Annual Coupon % 10.00% Annual Coupon Amount $2,00,100.00 Semi Annual Coupon Amount $1,00,050.00 Step 2: Calculate number of years to Maturity Number of years to maturity = 15 years Interest is paid semi annyally so total period = 15 Years * 2 = 30 Periods Step 3 : Caclulation of Current Market Price (intrinsic value) of the bonds Market rate of interest or Yield to Maturity or Required Return = 8.5% Bonds interest is paid semi annualy means so discounting factor = 8.5 % /2= 4.25 % PVF = 1 / Discount rate = 1/ 1.0425 Result of above will again divide by 1.0425 , repeat this lat period Period Interest Amount (In Million) PVF @ 4.25% PresentValue 1 Interest $1,00,050 0.9592 $95,971.22 2 Interest $1,00,050 0.9201 $92,058.73 3 Interest $1,00,050 0.8826 $88,305.73 4 Interest $1,00,050 0.8466 $84,705.74 5 Interest $1,00,050 0.8121 $81,252.51 6 Interest $1,00,050 0.7790 $77,940.06 7 Interest $1,00,050 0.7473 $74,762.64 8 Interest $1,00,050 0.7168 $71,714.77 9 Interest $1,00,050 0.6876 $68,791.14 10 Interest $1,00,050 0.6595 $65,986.71 11 Interest $1,00,050 0.6326 $63,296.60 12 Interest $1,00,050 0.6069 $60,716.16 13 Interest $1,00,050 0.5821 $58,240.93 14 Interest $1,00,050 0.5584 $55,866.59 15 Interest $1,00,050 0.5356 $53,589.06 16 Interest $1,00,050 0.5138 $51,404.37 17 Interest $1,00,050 0.4928 $49,308.75 18 Interest $1,00,050 0.4727 $47,298.56 19 Interest $1,00,050 0.4535 $45,370.32 20 Interest $1,00,050 0.4350 $43,520.69 21 Interest $1,00,050 0.4173 $41,746.47 22 Interest $1,00,050 0.4002 $40,044.58 23 Interest $1,00,050 0.3839 $38,412.06 24 Interest $1,00,050 0.3683 $36,846.10 25 Interest $1,00,050 0.3533 $35,343.98 26 Interest $1,00,050 0.3389 $33,903.10 27 Interest $1,00,050 0.3250 $32,520.96 28 Interest $1,00,050 0.3118 $31,195.17 29 Interest $1,00,050 0.2991 $29,923.42 30 Interest $1,00,050 0.2869 $28,703.52 30 Bond Principal Value $20,01,000 0.2869 $5,74,070.43 Total $22,52,811.10 Current Bonds Price = $22,52,811 Issue price of the bond= $22,52,811 Par Value of the bonds = $20,01,000.00 Discount to be amortized = $2,51,811 ANSWER =1) Journal Entries Date Account Title and explanation Debit Credit January, 01 Cash $ 22,52,811 To 10% Bonds $ 20,01,000 To premium on bonds payable $ 2,51,811 ANSWER =2) Working Notes: for calculation of the interest expenses Interest Expenses of June on par = $1,00,050.00 Add: Amortization interest = -$4,305.53 Total interest = $95,744.47 Journal Entries Date Account Title and explanation Debit Credit January, 01 Interest Expenses $ 95,744 Amortization expenses $ 4,306 To Cash $ 1,00,050 ANSWER =3) BALANCE SHEET (PARTIAL ) (As on June 30th ) Long Term Liabilities: Bonds Payable $ 20,01,000.0 Add: Balance in bonds Premium $ 2,47,506 Net Balance - Bonds Payable $ 22,48,506 Working notes EFFECTIVE - INTEREST AMORTIZATION SCHEDULE MARKET RATE OF INTEREST IS 6% AND BOND INTEREST IS 7% Date Interest payment on face value Interest Expenses (Cash paid - Decrease in Carrying value) Amortization expenses Debit Balance in bond discount Credit Balance in acct payable book Value of the bond 1/1/18 $ - $ - $ - $2,51,811.10 $20,01,000 $ 22,52,811 1 06/30/18 $1,00,050.00 $ 95,744.47 $ 4,305.53 $ 2,47,505.57 $20,01,000 $ 22,48,506 2 12/31/18 $1,00,050.00 $ 95,561.49 $ 4,488.51 $ 2,43,017.06 $20,01,000 $ 22,44,017 3 12/31/18 $1,00,050.00 $ 95,370.72 $ 4,679.28 $ 2,38,337.78 $20,01,000 $ 22,39,338 4 12/31/18 $1,00,050.00 $ 95,171.86 $ 4,878.14 $ 2,33,459.64 $20,01,000 $ 22,34,460 5 12/31/18 $1,00,050.00 $ 94,964.53 $ 5,085.47 $ 2,28,374.17 $20,01,000 $ 22,29,374 6 12/31/18 $1,00,050.00 $ 94,748.40 $ 5,301.60 $ 2,23,072.58 $20,01,000 $ 22,24,073 7 12/31/18 $1,00,050.00 $ 94,523.08 $ 5,526.92 $ 2,17,545.66 $20,01,000 $ 22,18,546 8 12/31/18 $1,00,050.00 $ 94,288.19 $ 5,761.81 $ 2,11,783.85 $20,01,000 $ 22,12,784 9 12/31/18 $1,00,050.00 $ 94,043.31 $ 6,006.69 $ 2,05,777.17 $20,01,000 $ 22,06,777 10 12/31/18 $1,00,050.00 $ 93,788.03 $ 6,261.97 $ 1,99,515.19 $20,01,000 $ 22,00,515 11 12/31/18 $1,00,050.00 $ 93,521.90 $ 6,528.10 $ 1,92,987.09 $20,01,000 $ 21,93,987 12 12/31/18 $1,00,050.00 $ 93,244.45 $ 6,805.55 $ 1,86,181.54 $20,01,000 $ 21,87,182 13 12/31/18 $1,00,050.00 $ 92,955.22 $ 7,094.78 $ 1,79,086.76 $20,01,000 $ 21,80,087 14 12/31/18 $1,00,050.00 $ 92,653.69 $ 7,396.31 $ 1,71,690.44 $20,01,000 $ 21,72,690 15 12/31/18 $1,00,050.00 $ 92,339.34 $ 7,710.66 $ 1,63,979.79 $20,01,000 $ 21,64,980 16 12/31/18 $1,00,050.00 $ 92,011.64 $ 8,038.36 $ 1,55,941.43 $20,01,000 $ 21,56,941 17 12/31/18 $1,00,050.00 $ 91,670.01 $ 8,379.99 $ 1,47,561.44 $20,01,000 $ 21,48,561 18 12/31/18 $1,00,050.00 $ 91,313.86 $ 8,736.14 $ 1,38,825.30 $20,01,000 $ 21,39,825 19 12/31/18 $1,00,050.00 $ 90,942.58 $ 9,107.42 $ 1,29,717.88 $20,01,000 $ 21,30,718 20 12/31/18 $1,00,050.00 $ 90,555.51 $ 9,494.49 $ 1,20,223.39 $20,01,000 $ 21,21,223 21 12/31/18 $1,00,050.00 $ 90,151.99 $ 9,898.01 $ 1,10,325.38 $20,01,000 $ 21,11,325 22 12/31/18 $1,00,050.00 $ 89,731.33 $ 10,318.67 $ 1,00,006.71 $20,01,000 $ 21,01,007 23 12/31/18 $1,00,050.00 $ 89,292.79 $ 10,757.21 $ 89,249.49 $20,01,000 $ 20,90,249 24 12/31/18 $1,00,050.00 $ 88,835.60 $ 11,214.40 $ 78,035.10 $20,01,000 $ 20,79,035 25 12/31/18 $1,00,050.00 $ 88,358.99 $ 11,691.01 $ 66,344.09 $20,01,000 $ 20,67,344 26 12/31/18 $1,00,050.00 $ 87,862.12 $ 12,187.88 $ 54,156.21 $20,01,000 $ 20,55,156 27 12/31/18 $1,00,050.00 $ 87,344.14 $ 12,705.86 $ 41,450.35 $20,01,000 $ 20,42,450 28 12/31/18 $1,00,050.00 $ 86,804.14 $ 13,245.86 $ 28,204.49 $20,01,000 $ 20,29,204 29 12/31/18 $1,00,050.00 $ 86,241.19 $ 13,808.81 $ 14,395.68 $20,01,000 $ 20,15,396 30 12/31/18 $1,00,050.00 $ 85,654.32 $ 14,395.68 $ 0.00 $20,01,000 $ 20,01,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.