Serenity Inc. is authorized to issue 5%, 10-year bonds payable On January 1 2016
ID: 2578303 • Letter: S
Question
Serenity Inc. is authorized to issue 5%, 10-year bonds payable On January 1 2016, when the market interest rate is 8%, the company issues S700 000 of the bonds The bonds pay interest semiannually (Cick the icon to view the Present Value of SI table ) Click the icon to vew the Pesent Vale of Annuity of $1 table (Click the con to ve w the Future Value of S1 table )(Click the conto ve the Future Value of Annuity of $1 table Read the requirements Requirement 1. How much cash did the company receive upon issuance of the bonds payable? (Round al numbers to the nearest whole dollar.) Upon issuance of the bonds payable, the company received $ 481912 Requirement 2. Prepare an amortization table for the bond using the effective-interest method, through the frst two interest payments (Round all numbers to the nearest whole dollar) Interest Carrying Cash Paid Expense Amortized 01/01/2016 06/30/2016 12/31/2016 issuance of the bonds on January 1, 2016, and payment of the nrst semiannual interest amount and amortizaton of the bond on June 3. 30. 2016. Explanations are not required. (Record debits frst, tien credts ) Journalize the issuance of the bonds Debit Date Accounts Choose from any list or enter any number in the input fields and then continue to the next question.Explanation / Answer
value of bond
interest*PVAF at 4% for 20 semiannual period + face value* PVF at 4% at 20th semiannual period
17500*13.59033 + 700000*.456387
557301.7
interest
700000*2.5%
17500
face value
700000
PVAF at 4% for 20 semiannual period
1-(1+r)^-n / r
1-(1.04)^-20 /.04
13.59033
PVF at 4% for 20th semiannual period
1/(1+r)^n
1/(1.04^20
0.456387
Value of bonds payable
700000
carrying value of bonds
557301.7
discount on bonds payable
142698.3
Journal entries
date
cash paid = 2.5% on bonds payable
interest expense = 4% on carrying amount
amortized = interest expense-cash paid
carrying amount = carrying amount+ amortized
1/1/2016
557301.7
30/6/2016
17500
22292.07
4792.067
562093.7
31/12/2016
17500
22483.75
4983.75
567077.5
date
explanation
debit
credit
1/1/2016
cash
557301.7
discount on bonds payable
142698.3
bonds payable
700000
30/6/2016
interest expense
22292.07
discount on bonds payable
4792.067
cash
17500
value of bond
interest*PVAF at 4% for 20 semiannual period + face value* PVF at 4% at 20th semiannual period
17500*13.59033 + 700000*.456387
557301.7
interest
700000*2.5%
17500
face value
700000
PVAF at 4% for 20 semiannual period
1-(1+r)^-n / r
1-(1.04)^-20 /.04
13.59033
PVF at 4% for 20th semiannual period
1/(1+r)^n
1/(1.04^20
0.456387
Value of bonds payable
700000
carrying value of bonds
557301.7
discount on bonds payable
142698.3
Journal entries
date
cash paid = 2.5% on bonds payable
interest expense = 4% on carrying amount
amortized = interest expense-cash paid
carrying amount = carrying amount+ amortized
1/1/2016
557301.7
30/6/2016
17500
22292.07
4792.067
562093.7
31/12/2016
17500
22483.75
4983.75
567077.5
date
explanation
debit
credit
1/1/2016
cash
557301.7
discount on bonds payable
142698.3
bonds payable
700000
30/6/2016
interest expense
22292.07
discount on bonds payable
4792.067
cash
17500
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