ACCOUNTING 14 Assignment Question 8 (of 8) value: 0.66 points Ellis issues 9.0%,

Question

ACCOUNTING 14 Assignment Question 8 (of 8) value: 0.66 points Ellis issues 9.0%, five-year bonds dated January 1, 2015, with a $550,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $572,325. The annual market rate is 8% on the issue date. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.) 1. Comnute the total hond interast avnance vorth Record entry Clear entry ew general journa Prepare the journal entries to necond the first two interest payments new t 4. Use the market rate at issuance to compute the present value of the remaining cash flows for these bonds as of December 31, 2017. (Round table values to 4 decimal places, and use rounded values Journal entry worksheet Record the first interest payment on June 30, 2015 Flow Par (maturity) value Interest (annuity) Price of bonds References Book & Resources Recond entry Expanded table Learning Objective: 14-P1 Prepare entries to record bond issuance and interest expense emaining cash ows or Difficulty: 3 Hard Learning Objective: 14-P6 Appendbx 148-Compute and record amortization of bond premium using effective interest

Explanation / Answer

Answer 1 Journal entry to record first interest payment on June 30,2015 Date General Journal Debit Credit June 30,2015 Interest Expense $22,893 Premium on bond payable $1,857 Cash $24,750 Interest expense as of June 30,2015 = (Issue price * Market interest rate)/2 = ($572325*8%)/2 = $22,893 Journal entry to record first interest payment on Dec.31,2015 Date General Journal Debit Credit Dec.31,2015 Interest Expense $22,819 Premium on bond payable $1,931 Cash $24,750 Interest expense as of Dec.31,2015 = (Carrying value of bond as on 1st July 2015 * Market interest rate)/2 = ($570468*8%)/2 = $22,893 Carrying value of bond as on 1st July 2015 = Issue price - Premium amortization = $572325 - $1857 = $570468 Answer 4 Computation of present value of remaining cash flows for these bonds as of Dec.31,2017 Date Cash flow Discount Factor @ 4% Present value June 30,2018 $24,750          0.96154 $23,798.08 Dec.31,2018 $24,750          0.92456 $22,882.77 June 30,2019 $24,750          0.88900 $22,002.66 Dec.31,2019 $24,750          0.85480 $21,156.40 Bond Par Value $550,000          0.85480 $470,142.31 Present value of remaining cash flows $559,982.21 Table Values are based on n = 4 i = 4% Cash flow Table Value Amount Present Value Par (maturity) value                                        0.85480 $550,000.00 $470,142.31 Interest (annuity)                                        3.62990 $24,750.00 $89,839.91 Price of bond $559,982.21

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