Business, 03.07.2020 03:01 lunagio67

$600,000 of 7% bonds due in 10 years. The bonds pay interest each July 1 and January 1. Assume an effective interest rate of 8%. Determine the price of the bond and prepare an amortization schedule for two years. What is the interest expense for January 1, 2021

Answers: 3

Show answers

Answers

Answer from: mrfishyyyy

the market price of the bonds = present value of face value + present value of coupons:

PV of face value = $600,000 / (1 + 4%)²⁰ = $273,832.17

PV of coupons = $21,000 x 13.590 (annuity factor 4%, n = 20) = $285,390

market price of the bonds = $559,222.17 ≈ I will round down to $559,222

The journal entry to record the issuance of the bonds:

January 1, 2020, bonds are issued

Dr Cash 559,222

Dr Discount on bonds payable 40,778

Cr Bonds payable

Assuming the effective interest method:

July 1, 2020, first coupon payment

Dr Interest expense 22,369

Cr Cash 21,000

Cr Discount on bonds payable 1,369

amortization of discount = ($559,222 x 4%) - $21,000 = $22,369 - $21,000 = $1,369

January 1, 2021, second coupon payment

Dr Interest expense 22,424

Cr Cash 21,000

Cr Discount on bonds payable 1,424

amortization of discount = ($560,591 x 4%) - $21,000 = $22,424- $21,000 = $1,424

July 1, 2021, third coupon payment

Dr Interest expense 22,481

Cr Cash 21,000

Cr Discount on bonds payable 1,481

amortization of discount = ($562,015 x 4%) - $21,000 = $22,481- $21,000 = $1,481

January 1, 2022, fourth coupon payment

Dr Interest expense 22,540

Cr Cash 21,000

Cr Discount on bonds payable 1,540

amortization of discount = ($563,496 x 4%) - $21,000 = $22,540- $21,000 = $1,523

Amortization schedule:

Period Interest Bond discount Interest Book

payment amortization expense value

0 $559,222

1 $21,000 $1,369 $22,369 $560,591

2 $21,000 $1,424 $22,424 $562,015

3 $21,000 $1,481 $22,481 $563,496

4 $21,000 $1,540 $22,540 $565,036

Answer from: Quest

$2.00 for three shots.

Answer from: Quest

answer; automated fingerprint;

Another question on Business

Business, 22.06.2019 10:10

Ursus, inc., is considering a project that would have a five-year life and would require a $1,650,000 investment in equipment. at the end of five years, the project would terminate and the equipment would have no salvage value. the project would provide net operating income each year as follows (ignore income taxes.):

Answers: 1

Answer

Business, 22.06.2019 11:20

Mae jong corp. issues $1,000,000 of 10% bonds payable which may be converted into 10,000 shares of $2 par value ordinary shares. the market rate of interest on similar bonds is 12%. interest is payable annually on december 31, and the bonds were issued for total proceeds of $1,000,000. in accounting for these bonds, mae jong corp. will: (a) first assign a value to the equity component, then determine the liability component. (b) assign no value to the equity component since the conversion privilege is not separable from the bond.(c) first assign a value to the liability component based on the face amount of the bond.(d) use the “with-and-without” method to value the compound instrument.

Answers: 3

Answer

Business, 22.06.2019 14:30

Bridge building company estimates that it will incur $1,200,000 in overhead costs for the year. additionally, the company estimates 50,000 direct labor hours will be spent building custom walking bridges for the year at a total direct labor cost of $600,000. what is the predetermined overhead rate for bridge building company if direct labor costs are to be used as an allocation base?

Answers: 3

Answer

Business, 22.06.2019 20:30

What talents or skills do u admire most in others

Answers: 2

Answer

You know the right answer?

$600,000 of 7% bonds due in 10 years. The bonds pay interest each July 1 and January 1. Assume an ef...

Questions