Question

The Bradford Company issued 10% bonds, dated January 1, with a face amount of $93 million on January 1, 2021. The bonds mature on December 31, 2030 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Determine the price of the bonds at January 1, 2021. 2. to 4. Prepare the journal entries to record their issuance by The Bradford Company on January 1, 2021, interest on June 30, 2021 and interest on December 31, 2021 (at the effective rate).

Answer 1

Req 1 Face Value of Bonds PV factor (12%/2, 10 years x2) Present Value of Face Value $ 9,30,00,000 0.3118 $ 2,89,97,400 (a) Interest @ 5% semi annual PV annuity factor (6%, 10x2) Present Value of Interest $ 46,50,000 11.46992 $ 5,33,35,128 (b) Issue Price of Bond (a+b) $ 8,23,32,528 Bond Discount Discount Carrying Date Cash Int paid Interest Exp amortization Balance Value 01-01-2021 $ 1,06,67,472 $8,23,32,528 30-06-2021 $ 46,50,000 $ 49,39,952 $ 2,89,952 $ 1,03,77,520 $8,26,22,480 31-12-2018 $ 46,50,000 $ 49,57,349 $ 3,07,349 $ 1,00,70,172 $8,29,29,828 Credit Req2 Journal Entries in the books of Bradford Company Date General Journal Debit 01-01-2021 Cash $ 8,23,32,528 Discount on Issue of Bonds $ 1,06,67,472 Bonds Payable (To record issue of bonds at discount) $9,30,00,000 Credit Debit $ 49,39,952 Req3 Date General Journal 30-06-2021 Interest Discount on Issue of Bonds Cash (To record interest expense) $ 2,89,952 $ 46,50,000 Credit Debit $ 49,57,349 Req4 Date General Journal 31-12-2018 Interest Discount on Issue of Bonds Cash (To record interest expense) $ 3,07,349 $ 46,50,000

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